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 in that timely manner.
Here's what to consider when establishing your B2B contract payment terms:
Contracts between your business and clients are established to ensure you're in agreement of expectations. Setting your business rates and invoicing are important parts of getting your business paid on time.
When invoicing or writing a client contract, include the following:
When determining 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 upfront, 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.
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:
These payment terms and policies, as agreed upon in the client contract, will be the strongest and most proactive protection for your business.