Financing or lump sum payment from clients?

[Chugach3DGuy]

I found a website for a video production company in California that intrigued me. They do mostly corporate video; maybe a little bit of commercial production as well. But what interests me is that they offer a financing plan to their clients. Can't afford to pay $10k all at once? Well, for 15% interest, you can pay $1000/month for about 12 months instead.

In our current economic situation, a lot of businesses seem to be tightening up their wallets and looking more at short term goals. So what do all you other Freelancers and Savvy Business Owners think of this? Anyone use it/like it/hate it/advise for or against it?

It seems like it could be both good and bad: Good in the way that it can help smooth out your income and help eliminate the typical Freelancer "Feast and Famine" cycle. But, it can backfire, especially if the client pays once or twice and then quits all together...

 

[Necktie Boy]

Can you link us?

 

[Chugach3DGuy]

Sure thing!

The company is called VMatrix. http://www.vmatrix.com/contact.html

And their financing info, although limited, is here: http://www.vmatrix.com/finance.html

 

[2 Hungry Dogs]

It all depends on your situation, and the credit worthiness of the client. What happens if they don't pay? Do you get any collateral? How will you collect if the checks stop coming, or they go out of business.

What about the time value of money. Are you going to pay your subs, or finance them as well? How about the legal ramifications. Does your state regulate financing contracts? There is a lot to think about, and many many reasons why most companies don't do this. Not a bad way to gain an advantage, but be aware there are huge risks. You are basically loaning them the money. Would you loan them $10k?

Just look before you leap, but i would be curious about what type of clients make use of this program, and how is it's success rate?

 

[Tv Shooter]

I'm pretty sure they are doing this through a finance company or receivables company. That way they accept cash from the loan company and then they are out of the picture should the client default.

No more different than financing a car or a HDTV...sorta like the 90 day same as cash we offered in a music store I worked in years ago.

 

[Chugach3DGuy]

You're right. There is much potential for stress and problems. You might have to become your own collections agent...

But yeah, I'm curious about this too. I figured there would at least be someone here on the forums that has had direct or indirect experience with this sort of thing.

 

[Alaska cameradude]

You're right. There is much potential for stress and problems. You might have to become your own collections agent...
.

Pretty much summed up my whole business in those couple sentences....

As for the financing thing, I actually offered that option to a business that owed me money....
They just continued to pay me nothing. Which is where me becoming my own collection agent
had to come in AGAIN. It sucked but after a bunch of threats and going back and forth, I
finally got my money......a good six months later.

 

[Necktie Boy]

Thanks Chug for the link!

And remember that the agency will take a cut from the full payment.

 

[Alaska cameradude]

Turn it into a collection agency like any business would do to you if you didn't pay your bills.

Yup, that is one of the threats I've had to use (haven't had to actually DO it yet). Businesses
that don't pay you, that you turn into a collection agency, well, let's just say it is not going to
help them get any financing for any business loans they might want to take out in the future.
Of course, if they are at the point of not paying you, they are probably more worried about
just trying to survive and not worrying about their credit score. It was a little funny though
when one business was late on paying and I was going back and forth with them, and finally
said, that if I didn't receive at least a partial payment within 30 days, that I would be 'forced' to
turn them over to collections, they were like 'you can't do that'. As usual, they thought, that if
you do video, you just do it for fun and as a hobby, it's not like you are EXACTLY like every
other business out there......somehow, you are not SUPPOSED to actually collect the money
that you are owed.

 

[prosheditor]

Its better than getting nothing at all.

Which is exactly what it could be if the collection agency's fees meet or exceed the amount due.

 

[Chugach3DGuy]

I suppose that if I were to cut a deal with some kind of lending agency to offer my clients a financing plan, I'd be okay if they were to take a reasonable percentage of the final amount. After all, they'd be sharing in that same risk.

As for collection agencies, I was under the impression that it was only feasible to use one if your delinquent client owed more than some specific amount. They apply their fees and take their percentage, but I thought it was from the amount owed to you. For instance, if I owe you $10,000 and you go through a collection agency, their fees and percentage might add up to 50% of whatever they can collect, so at best, you'll see $5,000. If I only owed you $500 though, it wouldn't be worth it to send to a collection agency. I don't know the specifics, but I do know people that are being collected from, and it just makes me glad they're not my client.

 

[justFRED.ca]

We do something a bit like this, but slightly in reverse.

First, we figure out what the project cost is likely to be. Then we figure out how long the work will take from start to finish. We typically require a 20-25 per cent advance payment, then divide the remaining project estimate by the number of months (for longer projects) and by the number of weeks (for the shorter ones) and issue a set of monthly or weekly invoices. As long as the money comes in when it should, the project rolls on. Delayed payments mean a delay in the project, plus we reserve the right to move ALL deadlines related to the project back equal to the total of the payment delay(s) and/or charge a premium for us to get the project back on track. (We include the same deadline move option for delays caused by the client's failure to meet their deadlines in the project - approvals, materials, etc.)

We found this policy keeps the deadbeats away from the door, improved our cash flow, and keeps clients focused on completing projects.

One of our former colleagues was notorious for letting clients turn a two-month project into a year-long indecision fest, allowing for serious feature creep, and not billing until the project was completed. Drove us all nuts, cost everyone money, played havoc with cash flow projections, and let clients dither forever with no real incentive to finish - and pay - for the work. And she was always expecting her contractors - like us - to bear the brunt.


Cheers,
George