Doesn't matter, if you are a super small biz and especially a home based biz. More than likely your are not rolling in the dough (no pun intended). Many don't not have liquid funds available to even buy ingredients to make an order so even one no-pay can cause financial issues for a family. And the last Dell I ordered did a preauth on my card that froze the funds for a week on my account. They got the auth coded they needed the minute I hit the purchase button. If I order something from just about any company online my card is charged immediately, not when it is shipped.

Our studio ordered dance team warm ups with our studio name and a dance graphic embroidered on them. We had to pay for them upfront well before they shipped them. Why? because they were custom and could not be returned for resale. So we had to be very careful to order the proper sizes. The only way to do a return would be if something was defective with the warm up. Cakes are custom. They have a shelf life. They must be paid for in full before you even turn on your oven.
If you are fortunate enough to not need the funds prior to making the product then more power to you. But what recourse do you have if they flake on you? If you are ok with the 1 in 50 or 1 in 100 who doesn't pay (and I do believe that it depends on the area you service as well) then you obviously can absorb such a loss. I know I personally can't and won't, nor can most of my fellow cakers. And even if you can afford such a loss why would you even set yourself up for the situation in the first place?!

Oh hey! Just refrost it and offer it as special a week later. Dang, that's classy!

cakesdivine, you're absolutely right that it depends on the area...if I was getting a non-payment rate of 1% or 2% instead of less than two tenths of one percent I would probably change my policy. Personally I wouldn't start a business without a decent cushion of funds but I understand different people have different tolerances for risk.

Of course, people who accept credit cards have no problem with an automatic non-payment rate of 2-3% (once you account for fees), but that's a different topic.

Our business is also in a slightly different situation from most, since we are the only bakery within 300 miles that can provide a safe product for many of our customers (due to food allergies), so they don't want to end up on our blacklist.

Yeah, hey everyone, forget about the whole payment up front thing. Someone will eventually pay for the cake you've refrozen a few times. Unbelievable.

Home based bakers many times don't have extra funds that is why they do it from home. They start with friends and family, word spreads they begin to pick up more orders and from people they know nothing about. You don't have to have a cushion to start a home biz because your up front costs are minimal. Most cakers aquire their wares over time, getting things as birthday gifts, Christmas gifts, grabbing a tool here and there, and appliance here and there. So they have what they need to get going. Granted this only works for the home baker, those who must due to laws rent space of course need to have that cushion because most of the income if not all will go right back into the business for quite sometime until the business brings in enough to turn a profit. Home based is a different animal. The original OP sounded as if she was a home based caker. We don't know if she did a small quarter sheet that may have only cost her about $10 out of her pocket or a large tiered event cake that may have cost her $100 out of her pocket. $10 is an annoyance, $100 is probably budget crushing. Could mean a bill or 2 doesn't get paid that month. Understand?

Sorry to hear about the situation. I agree with all the posters regarding getting a non-refundable deposit to secure the date & order and full payment at least 2 weeks before the cake is due.

My other advice is to consider not taking any future orders from her. "When people show you who they are the first time believe them."