Getting paid is one of the biggest issues small businesses face. There are lots of things you can do to help this including invoicing promptly and having robust credit control procedures. Your payment terms have an important role to play too.
Your payment terms and how you communicate them sets a baseline for future interactions with your customers regarding getting paid. They outline when you expect to be paid, what happens if payments are late, how to pay you, and more.
Despite their importance, many businesses either don’t have payment terms or they have payment terms that are inadequate. The assumption is often that standard payment terms are 30 days and there is nothing you can really do about it. This is not the case, however.
Make Your Due Date Shorter
Thirty day payment terms were normal back when invoices were printed and posted and your clients then wrote a cheque, spent days getting it signed, and then posted it back to you. Payment terms of 30 days were intended to give enough time for this process to happen. Today, most businesses don’t operate like this. Instead, you probably send your invoices by email and many of your clients will pay you electronically too.
As a result, 30-day payment terms are not required. Why should you change them, though?
Adjusting your payment terms with a shorter due date will encourage your clients to pay you faster. This will improve your cash flow and can reduce administration time. It can also make you more competitive.
The payment terms you should offer will depend on your business but some common terms include:
- Pay on receipt
- 7 days
- 14 days
Bring Your Payment Terms Up-To-Date
The due date is not the only thing you should update on your payment terms. You should also outline clearly how customers can pay you as well as offering modern payment options. This includes letting customers pay you by credit card – this step alone can help you get some invoices paid faster.
You should also include details of what happens when invoices are paid late, including details of late payment charges, if you have them.
Implementing Payment Terms and Making Them Work
The most important step to make your payment terms effective is to communicate them properly to your customers. You must do this as early as possible and before the client places an order with you. This will ensure your client understands what you expect.
Other practical tips to help you make your payment terms work include:
- Make your invoices as clear as possible – clients will not be able to pay you quickly if they don’t understand your invoices so make them clear and straightforward.
- Send the invoice to the right person – this also helps to avoid confusion and delay.
- Invoice immediately – the longer it takes you to send the invoice, the longer it will take to get paid.
- Follow up quickly – take action quickly whenever your payment terms are broken to remind the client to pay.
To get help or advice on payment terms or anything else to do with your business, please contact a member of the Gilroy Gannon team today.