Advance Payment Incentive

As we approach Q4, which is often a period of poor cash flow (2018/2019 were quite the opposite, but I am concerned about 2020), I am considering offering some sort of incentive for clients to prepay for 2021 services--specifically, tax services. Overall, I can predict what existing clients will pay year-over-year.

Rather than discount the services, I was thinking of offering "x" amount of credit for services to be rendered in 2021 or 2022 (if not used by then, the credit is forfeited). The amount of the credit would be based on a range of values of services--the more a client generally pays my firm, the greater the applicable credit.

Has anyone offered a prepayment incentive? What incentive was used and how well did it actually work? The intent would be to have them sign engagement letters this year for 2021 work and generate some cash for additional reserves "just in case."

I wouldn’t suggest offering a discount. I would ask clients to pre-pay a percentage of their 2020 tax compliance fee (to lock in a fixed price perhaps). It’s okay to tell clients that you need to start pre-billing a portion of fees to manage economic disruption caused by the pandemic (if that’s a reason, for example). Contractors demand partial payment up front ; big 4 firms demand partial payment up front ; lawyers demand retainers ; you can and should evolve too if needed.

I already do require at least 50% upfront. I am just trying to think of a way to create incentive for clients to pay IN FULL in Q4 for work that will not occur until 2021.

Some of my clients have, from time to time, prepaid their tax prep bill when they wanted the tax deduction in the earlier year. I also have had agreements with some business clients to bill a set monthly fee to help stabilize their cash flow, so they prepay fees in installments. But in those cases, there is a clear client benefit; what benefits are you personally willing to give your clients for paying early and receiving scrip in the bank of CornerstoneCPA?

The other issue is that you want to supplement poor cash flow by robbing April 2021 to pay November 2020. If you're successful in this endeavor, you will then have an April 2021 shortfall; what month will you need to rob to make up for it?

what benefits are you personally willing to give your clients for paying early and receiving scrip in the bank of CornerstoneCPA?

The other issue is that you want to supplement poor cash flow by robbing April 2021 to pay November 2020. If you're successful in this endeavor, you will then have an April 2021 shortfall; what month will you need to rob to make up for it?

My current thought is a general account credit, based on the amount they generally pay my firm, that can be used for any offered service through 2022.

As to robbing tax season to cover Q4, not really the case. If the cash is not needed, it would not be used and would carry over (more likely than not--for my firm, work generally arises that keeps me pretty busy in Q4, but for prior firms I know it was always a slower period and thus I still become worried). I also have plenty of new work lined up starting Q1, and overall growth remains quite strong.

I may not do it at all. I was going through billings I need to do to some clients for subscriptions they maintain through me, and it adds up to quite a bit of cash reserve.

My current thought is a general account credit, based on the amount they generally pay my firm, that can be used for any offered service through 2022.

Tell me, your hypothetical client, why I should pay you today to complete my tax return in March, if you're not going to provide a discounted fee as a part of this arrangement. It seems a bit foolish for me to do.

As to robbing tax season to cover Q4, not really the case. If the cash is not needed, it would not be used and would carry over (more likely than not--for my firm, work generally arises that keeps me pretty busy in Q4, but for prior firms I know it was always a slower period and thus I still become worried). I also have plenty of new work lined up starting Q1, and overall growth remains quite strong.

I may not do it at all. I was going through billings I need to do to some clients for subscriptions they maintain through me, and it adds up to quite a bit of cash reserve.

You either have a cash flow problem or you don't. If you have a cash flow problem, then you need to look at reducing your personal expenses because your spending is far outside the earnings of your business and it's not like it's a secret that Q4 are slower in our industry.

Good grief, can this thread just be deleted? Wish I never posted the SIMPLE question.

I am not going to do anything on this front. My desired reserves will be achieved when I bill and am paid for things I forgot about when I first thought of the idea.

Is it possible you can generate additional revenue in Q4, instead of pulling forward Q1 revenue?

i.e. year-end planning, scouring your client list for consulting opportunities, etc.

I'm not trying to be harsh; I'm actually trying to help you work through this idea. Based on your posts, I couldn't figure out what your clients would get out of the deal, or why you had a need to move 1Q21 cash flow into 4Q20.

In my first post I gave two examples where my clients have paid me early -- and they did so gladly because they were getting something in return. Or there's the doctor concierge model where you essentially prepay a year of service at a premium and don't run it through your insurance, but your doctor will book appointments long enough to actually help you and will be "on call" for you throughout the year. I'm going to pay my UltraTax bill early because they offered me an incentive to pay this year instead of the PRP charges next year that I ordinarily do. On the flip side, I pay more to Microsoft overall under their Office 365 model than I did when I bought the Office discs, but their expanded package and the cloud integration (unless it's down) makes it a lot easier for me to do business. In each of these cases the business is changing billing practices, but in each case there are benefits to both the business and to the customer. That's why those schemes work.

Because you weren't going to discount your services, you were thinking of giving clients (i.e.) $1,000 in credit for a $1,000 upfront payment, right? Or were you going to give them (i.e.) $1,100 in credit so they could use it to get their tax return prepared and have a conversation with you in November to do some tax planning? If you were going to offer the latter, then you've actually answered my primary question.