B2B Payment Terms - what is the fairest system?

[spiderhousepr]

Hello,

I am in a position where I have will be providing a (unknown) number of services to a client on a regular basis. The clients usual payment terms are "Net Monthly" (ie. payment due on last day of the month following the one in which the invoice is dated).

We can all see the problem - up to 60 days could pass before payment is due (nevermind the potential delays & late payments!).

Is there a fair way of invoicing which does not put me so much at risk? There is potentially a lot of work that could be done (& bills to be paid!) before we even see anything.

Is there a method whereby there is certain amount of "Payment On Account"? Something a little fairer?

[spiderhousepr]

or can you add credit limits to the account?

eg after £2000 a payment must be made

[KernowQueen]

i don't really think that fair comes into really, it's whatever you & your client will be happy with (as per your T&C's). perhaps payment 7 days after invoiced in these circumstances?

once you've agreed payment terms, then the onus is on you to manage their account. at least if it's a regular service that you'll be providing, you have the option of putting them on 'stop' if they do start delaying payments.

i presume you'll credit check & ask for references before giving them credit any way?

[spiderhousepr]

thanks for the reply :)

yes - either way we'll credit check first.

7 days would be great for me however I understand many larger businesses operate net monthly / only have one BACS run per month so I'd like to work something of a compromise which doesn't put me in such a risky position & doesn't upset their accounting system - that's what I mean by "fair".

[fundingportal]

Always remember that credit terms are just one part of negotiation. First, don't be afraid to explain the strain that their terms will put on your cashflow - obviously your people have to be paid on time

If there is a genuine systemic reason why they can't change this, is there anything else they can flex on - eg deposits, payments on account, paying separately (or providing themselves)for consumables and out of pockets?

Sometimes terms are take it or leave it, sometimes they are flexible..

[angela.hou1983]

Hi, I'd like to share my experience on this issue, which i agreed with my customer:
1. T/T, by 50% in advance, another 50% before all service is supplied.
2. Give some days credit, such as if pay within 7 days, with contact value, while if pay within 15 days, with additional 10% added.

The longer the credit days is, more payment is requested.

Hope it is helpful.

[Geoff T]

What you're talking about here OP is a "credit control policy"

WHEN does the business WANT to see the money?

WHEN does the business HAVE to see the money?

Does this leave room to negotiate?

CAN the business fund longer terms (if the work potential is too good to ignore) some other way?

Can the costs from above be added to the price, or will it just reduce the profit margin on the quote?

and that's just for starters...

[Anglia Finance]

With credit terms you have to get what you can without losing the business. Clearly the sooner you get paid the less risk and bigger your margins as you will be collecting your money quicker.

You mention risks, what exactly is it that worries you? There are mitigants you can have such as credit insurance to protect you against bad debts and overdtaft / invoice finance if you think it will stretch your cashflow too far without financial assistance.

[andygambles]

7 days would be great for me however I understand many larger businesses operate net monthly / only have one BACS run per month so I'd like to work something of a compromise which doesn't put me in such a risky position & doesn't upset their accounting system - that's what I mean by "fair".

That frankly is a load of ******** spouted by organisations to delay payments.

It was kind of acceptable when payments used to be made by Cheque. Was in a business when they would print off all the checks to be paid on a special machine once a month.

Nowadays with electronic payments there is no reason they can not get an invoice and schedule a payment there and then for the due date (or before if they are feeling kind).

[Credit Minder]

If you give unsecured credit you have got to fund it? Geoff T is right about having a credit control policy in place and it has to be one every account created can adhere to and one you can afford to operate.

'Standard' terms can be different for every industry and there are no hard and fast rules as to what is 'fair.' Some of the posts on this thread prove that to be the case.

Set out your credit stall and stick to it.