A couple of months ago I had a cancellation. As happens from time to time. You just roll with it - because really there is nothing you can do about it, and sometimes it takes the pressure off of an over-booked schedule.
The problem is that it is very easy for a prospect to cancel a job when they haven't made a financial commitment. Unfortunately, as the contractor, you don't have the same flex going the other way. Imagine cancelling at the last minute on a customer - the bad rep you would develop, how you could totally mess up their entire project schedule and that of the other trades, etc...
When you don't take a deposit, your prospective client is far more likely to cancel on short notice. This can be a significant risk to your business because you can easily lose two customers - the original job and the job you turned away because your schedule was full.
Taking a deposit can insulate your business from this risk. It acts like a filter for your prospects, helping you determine who gets space in your schedule. The deposit can also be used to order materials so that you are not spending your money on their paint.
The smaller your business, the more important the deposit is. A single job can represent 100% of your capacity for a particular period of time. Imagine a restaurant closing their dining room, and losing other guests, for your function without getting a financial commitment from you. You just can't afford to put your business in that position.
What if a client has to cancel and they have given you a deposit already? I generally state that the deposit is due a minimum of 2 weeks prior to the start date, along with their colours. I usually order the paint right away. So the deposit pretty becomes non-refundable at that point. However, it is not my intention to hold anyone's money ransom. If a reasonable cancellation was necessary I would try to return it. At times I may request the deposit earlier if there are multiple clients competing for the same availability. In any case, in 12 years I have never had a cancellation after a client provides a deposit. Whereas cancellations without a deposit are quite common.
As we discussed earlier, the deposit will also filter out potential troublesome clients and help you to maintain consistent service levels, while keeping your cash flow steady. Customers will treat you with more respect. So confirm the mutual commitment with a deposit and watch your stress decrease and your profits increase.
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