Coop, you are of course, right for the majority of people who are perhaps untrustworthy or untrusting.. it can go both ways. Perhaps it is the model of sales and the fact that so many are running on a shoestring budget as Knifemakers and presenting themselves as full time professionals that end up letting people down when they run out of steam.
My model does work for me.. because I am me..

People trust me and have good reason to. You have to build a model that will work.
"Reality: Payment = motivation = reward. Payment first = reward first = less motivation. Human nature? I'd say so."
Perhaps.. but this is a reality where you believe and accept that the person you are hiring actually has low self-esteem to get the work done if they have allready been paid.. I run on an opposite scale.. If I dont have your money, I have very little obligation to you to get something done.. If I have your money and trust, then I am very motivated to get the work done and complete my side of an honorable bargain. What you imply (and probably correctly) is that too many people run at a lower ethical model (intentionally or not.) What you are implying is that the majority of humans by your estimation dont actually value honor and commitment, or simply dont have the energy to do it even if they can follow that belief. I personally run on a higher level than that and the people that and people see it, and trust it. All of my customers come from Youtube.. I take great pains to make myself visible.. no false names.. no aliases.. everything is real. because of that I have customers in over 30 countries all sight unseen who put their faith in who I am.
I have 1 person in Switzerland recently who insisted on pre-paying for 6 knives (he's never had one before) but he wanted to make the best of the exchange rate 2 months ago. As Mike Snody said.. How you portray yourself is everything.. and I think the fact that people trustingly throw money at me is a testament to the fact that there are Honest makers, and Honest clients in abundance.
I'm pretty certain Murray Carter takes full payment in advance too, along with many very successful makers.
Lets look at another scenario of a smaller maker..
lets say the maker wants to make 30 knives and no-one wants to pay a $50 deposit.. Thats fine but on that same human nature I'd also want a signed contract from each of the 30 people committing to the sale.. If I am going to put all my money up front because you ask for something, then in turn you should be willing to contractually commit to the item as long as the completed item meets expectations. This poses a second issue of getting a custom item.. peoples minds dont always match in artistry, and the fickle buyer asks for something unusual, and the 2 minds dont agree leaving the maker with a knife that no-one else wants, and a buyer that had remorse and backed out for no valid reason.
Now, lets look at basic marketing.. If I am putting all the money up front myself with no deposits I have a higher risk. Economically this demands a higher price for a knife.. Arbitrarily lets say $200 per knife for 30 knives.. I dont have running capital because I am small so I have to buy everything in smaller amounts, and heat treat them in smaller amounts, and make them slower and get each payment in turn, before I can work on the next. This leads to slow turnaround, and not always the best motivation to continue..
We could however convince 30 people to put down $50 each. 1500 is a good working capital to buy the materials in bulk, grind in bulk, and Heat treat the batch in bulk.. Everything gets done quickly, and the maker is productive and motivated by the task. The Maker can then charge $150 for the exact same thing across the line of 30 committed people...
What I am doing is not an anomaly, but a business practise used for a very long time by many profitable people. I think its something anyone can acheive as long as it is part of a well documented business plan that the consumer can understand.
Applying a production line business model (ie.. see first, pay later) simply leads to a lot of custom makers who dont survive and cannot continue in the business. I have bought custom knives, custom furniture, custom archery equipment, custom all sorts.. Apart from the knife industry, I dont actually know of any custom makers doing on-spec work that work without a deposit to cover the sundries or having an airtight signed contract (only works if not international)
"Knives are not only tools. Unused they provide enjoyment through pride of ownership, because they may have superb engineering, fitment, style, and artistic lines. "
Again.. this is correct for many.. for many they are simply art, and they will never actually know if what they have is truly functional and fit for purpose. but in that case, I would call it art.. because my personal opinion is that a knife is a tool for cutting and the desirable qualities are those that make it durable, comfortable and efficient. that makes it worth having.
Someone above said that a good policy is (paraphrasing) "to always do the best you can".. Well in business I have to fully disagree.. What if as an ABS mastersmith, the best that you can do always results in a $6000 knife that most cannot afford.. Where-as you are fully cabable of creating numerous $100 knives that are far below your best, yet are still highly functional and affordable tools for a life time.. In business its not about doing your best.. but in providing Value-added service or goods at a price point and level of finish people want. If I made only knives to the best of my ability I doubt I'd sell more than 1 a month.
I hope some of what I say is useful to the OP.. but at the end of the day, you cannot run a business if you dont have the right mentality for the business model. You have to pick something that you are able to accomplish.
Wow.. Did I really just write all that
All the best.