I just heard a story about a designer that really worries me. This designer was using her personal credit card to finance her client’s purchases. She was purchasing, ordering and maxing out her credit card without receiving the proper funds from the clients first. Then she was stressed about her clients paying their bills. I would be too.

This is, financially speaking, a very precarious position to be in.

Not only is it unwise to put her family’s financial resources on the line to get the job, it is just an all-around bad business practice.

Think of it this way. If you went to Joe’s Furniture Store and ordered a custom Marge Carson sofa, the store would figure out the price and you would pay in-full for the sofa right then and there. The furniture store doesn’t want to be financially responsible for your piece of furniture, so you have to give them the funds to cover the cost when you commit to the purchase. Our design businesses should work in the very same way.

This is an extreme example, but those of you that routinely take 50% down and get the balance on delivery are at risk as well. Very often 50% down does not cover the wholesale cost (plus shipping) of the item you are purchasing, and many items must paid for before they ship. Again, you put yourself at risk if you are using your credit card to pay the balance due to your vendor, and then hope the client pays you promptly. On a big job, this could add up to thousands of dollars of debt. Be careful.

Here are some simple tips that will prevent you from falling into this trap.

Tip #1 – Set up some clear boundaries around how money, product orders and contracts are handled in your business. Write down the rules and keep them where you can see them and be reminded. Pretend you are working for someone else and you must follow these rules. Remember that clients are not friends and family, so resist the urge to take care of them. Clients usually have way more money than you do. Just ask for what you need.

A designer who orders product for clients without the proper proposal, payment and signature sets herself up for disaster. This is clearly a boundary issue. This designer may feel that she must prove her worthiness to the client, or she is fearful about asking for money.

Tip #2 – When you write your product proposal, make your client deposit large enough to cover your entire wholesale cost of the product. Or better yet, ask for the entire amount of the purchase up front. You will be amazed how agreeable clients are and how easy this is to do.

On the other side, if you have a client who will not pay the proper deposit, or wants to see it delivered before they pay, run the other way. The small profit that you make is not worth the risk.

The same goes for Letters of Agreement for design services. Get a substantial retainer to start, and make sure you are paid ahead of doing the work, not when you finish.

Tip #3 – Write your purchase orders and use your credit card only after you have received a signed purchase agreement and the proper deposit from the client. Then use your business credit card to order, and pay it off promptly every month with the client’s funds.

Bookkeeping note: To help keep your accounting straight use this credit card for the business only and never for personal purchases. Use another card for personal use. Your accountant will thank you.

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