Healthy cash flow is important for any business. Business owners who set clear payment terms with their customers, invoice quickly, and follow up on late payment can avoid the dreaded cash flow crunch.
We’ve put together some simple guidelines for setting payment terms that can help you get paid quickly and maintain a steady cash flow.
Decide on your terms
The purpose of your payment terms is to outline exactly how and when you want your customers to pay you. Some business owners draw up a document to share with potential customers outlining their fees and terms. Others just include them in their work contracts and invoices.
However you decide to communicate your payment terms with customers, make sure they include:
- When the payment is due
- Accepted forms of payment (i.e. cash, credit, debit, Paypal, e-transfer)
- Your preferred currency (if you serve international customers) and
- Early payment discounts and/or late penalties.
Try to also include a clause which requests a percentage payment up front.
Payment now, NET10 or NET30?
Whilst it’s customary to be paid within 30 days of invoicing, as a small business owner you can set the payment terms that suit you best.
Depending on the industry standard and whether your clients pay electronically or by cheque, you might stipulate a shorter or longer payment deadline. You can check the payment terms of any contract agreed with either your talent manager or the brand you are working with.
In the digital age, it’s not uncommon for small business owners to set a NET10 or NET 14 deadline. Or you can choose to negotiate payment terms on a client-by-client basis. Make sure you are aware of the payment terms from your Multi-channel network (MCN) – these are usually 30 or 60 days.
Taking into account what works best for you and your customers and being clear about expectations will make it more likely that you’ll be paid on time.
When to invoice – and when to follow up
It’s in your best interest to invoice immediately. After all, the sooner you request payment, the sooner you’ll receive it.
Some small business owners offer an early payment discount as an incentive to pay faster – typically for NET30 invoices at a rate of 1-2%. Many customers will appreciate the opportunity to save money, and many business owners don’t miss the small amount taken off the bill.
Customers who routinely pay late may be motivated by a late payment penalty – also in the 1-2% range of payment.
Make it a policy to email a friendly reminder on the date payment is due. If payment is late, follow up with a phone call the next day to find out when you can expect payment.
- Take advantage of cloud-based accounting software such as Chaser, which specialises in assisting with the automation of your credit control system, that can be accessed anywhere, including your smartphone, to generate invoices.
- Be willing to negotiate with late payers; partial payment is better than not being paid at all.
- Make sure you have the correct details on your client’s invoice to avoid payment delays.
- The last resort is to take legal action – in this case, it is important to take legal advice.
For further guidance in this area please contact Sam Uwins on 01903 234094 or email firstname.lastname@example.org