The Importance Of Your Payment Terms
Payment terms seem such a small thing in the scheme of your business, but the reality is it couldn’t be further from the truth. Your payment terms affect your cash flow and enable you to balance the books and meet your debts. You must set your customer terms with their specific needs in minds.
Just because some businesses offer 60-day terms, doesn’t mean that you have to as well. Each business is different and each has their unique set of issues which affect cash flow on a daily, weekly or monthly basis.
You control your cash flow
Many small businesses underestimate the power they have on their cash flow. With more and more companies paying their bills later and later, the only option many small businesses have is offering 7 or 14-day payment terms. If you offer 30-days, then businesses can in all likelihood take advantage of your time-frame and extend it even further. Sometimes challenging the norms to benefit your business is the best thing to do. 30-day terms were more popular when organisations sent their invoices by mail; as times have changed, so can the obsolete business terms. 7 to 14-day terms are more popular than you might imagine.
Be clear in your communication
Always discuss payment terms up front with your clients and invoice in a timely fashion. Make sure that the conditions are noted on all invoices and statements which are sent to the client. Get all the questions out of the way at the start, so there is no room for confusion. Be clear in all forms of your communication and let them know any and all acceptable forms of payment, and whether any late payment penalties apply. It is important that your clients understand that you mean business when it comes to any overdue invoices.
Be proactive and follow up late invoices promptly
Be proactive with your actions. As soon as the invoice is overdue, send them a polite reminder by email or give them a quick courtesy phone call. It happens all the time in business, and often only a gentle reminder is required to get them back on track. If clients know that you will be knocking on the door as soon as payment is late, they will be prone to paying your invoices in a more timely fashion. Trust us, that’s a good thing!
Offer rewards and/or penalties
Some companies decide to charge late payments and it is purely a personal choice. The same goes for discounted invoices if clients pay on a prompt basis. You can try and see what works best for your situation and your customers. Sometimes a bit of trial and error is involved in getting it right.
Hindsight is a wonderful thing for businesses. It isn’t until debtors start dragging their feet that many creative entrepreneurs and start-ups realise the problem that can come with monthly or two-monthly payment terms. Excellent communication and crystal clear payment terms will aid your cash flow and make it easier to plan a cash flow forecast. Remember, always do what is best for you and your business.