How to Set B2B Contract Payment Terms

Posted by Ryan Howard on Dec 11, 2017 11:53:45 AM

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When building out contracts or proposals for clients, the simplest option is to create a standard agreement and use it every time. Each of your clients, however, may require a different financial arrangement. Your written contract is a binding agreement for services and payment and will protect your business. If every client paid on time, one set standard of payment terms would work fine. Unfortunately not all clients pay that timely. 

Here's what to consider when establishing your B2B contract payment terms:

What is included in a Client Contract?

Contracts between your business and clients are established to ensure you're in agreement of expectations. Setting your business rates and invoicing are an important part of getting your business paid on time.

When invoicing or writing a client contract, include the following:

  • Business name and contact information, including accounts receivable and sales contact
  • Client information, including accounts payable contact or responsible party
  • Invoice or account number (if available)
  • Description of work or services
  • Work or services rate
  • Dates of or deadlines for work or srevices
  • Total cost
  • Payment options, including forms of payment accepted by your business
  • Payment terms, including due date

What Determines B2B Payment Terms?

When determinging the payment terms for your contract or client agreement, it's best to do some due diligence on your client.  Just as any issuer of credit would do a credit check, your accounting department should also carefully consider the client. Remember to be aware of any red flags or signs that the client isn't a good fit for your business

How established is the business? If your client is brand new or hasn't been in business long, you may want to consider a stricter payment policy. You could also incent them to pay early with a discount, pay all or partially up front, or add late payment fees to the contract.

Does the business have a history of on-time payments? With a solid payment history, your contract or invoice could be as simple as "net 30". A best practice is to build a good relationship with this client, or continue one already established, as they may be a good client to keep around for a while.

What if the business always pays late? If your client consistently pays late, it may be time to have a challenging but necessary conversation. Is it time to enforce any late payment fees or stop services until payment is made? Can you negotiate a longer payment term so your business isn't expecting payment sooner? When renewing a contract with a late-paying client, add in penalties if they are not already included. 

Learn the Best Way to Get Clients to Pay

Protect Your Business from Late Paying Clients

Simply requiring a signed agreement is a good first step in protecting your business from late paying clients. Setting strict payment terms and consequences, proactively, give you a leg to stand on when demanding payment. Other ways to get paid on time or recover late payments include:

  • Requiring frequent payments by invoicing more often
  • Requiring payment by credit card
  • Requiring payments up front, partially or in full
  • Adding late fees for invoices not paid in full or on time
  • Discounting the price if paid in full earlier than the due date
  • Setting up automated recurring payments for retainers
  • Establishing a collections policy as part of the contract

These payments terms and policies, as agreed upon in the client contract, will be the strongest and most proactive protections for your business. 

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Topics: Best Practices, Accounts Receivable