If you extend credit to any customers, new or existing, outline how and when you want to be paid. Be specific on each factor and let customers know what will happen if they do not meet those payment requirements. Something to remember is that if you don’t set the payment terms for your business, your customers will. The terms you set are to protect your rights, limit your liabilities, and provide you with some security that you will get paid.
When are your bills due?
Make sure when you set up your payment terms you get paid in time to pay your bills. You may also be interested in taking advantage of pre-pay or early pay discounts. This can save you hundreds of dollars over the course of a year.
Your terms should outline how and when you want to be paid as well as the circumstances that will follow if the payments are not made as agreed. Once a week, or at least twice a month, print out and take a good look at your accounts receivables aging report, are customers becoming slower in their payments as the economy continues to falter? Follow up with those customers now and get them back on track, maybe with a payment plan if they cannot pay in full at this time.
Some things you can do to improve your cash flow and help your customers pay your invoices:
– Offer discounts.
– Get 50% down at the time of the order
– Check each customer’s credit.
– Sell old outdated inventory on sale.
– Issue invoices immediately.
– Follow up right away with slow paying customers.
– Offer payment arrangements.
– Use a different color paper to print your invoice and statements.
– Use a larger font on the total amount due and underline it twice.
– Have a call to action on your invoices in a large font, in a bright color, something such as PAY NOW or PAY IMMEDIATELY in red, blue or green ink.
– Include postage paid or pre-addressed payment envelopes and include them with the invoice and/or statements.
– Stamp or print an important message on the outside of the envelope you mail your bills in, you can use a rubber stamp or your printer, some examples:
– Dated material
– As Requested
– Do Not Bend
– Handle with Care
Some things to think about when you are setting your payment terms:
– How often do you want to get paid?
– Do you want to get paid at the time of sale or service or do you want to offer something like 30 day terms?
– Maybe you want to offer 30 day terms with a discount if the invoice is paid in full within 10 or 15 days.
When will receiving this money benefit you most? Maybe right before your bills are due so you have the money on hand to pay your bills on time or take advantage of early pay discounts and saving even more money. When setting your terms, choose a time of the month that you want to be paid, such as the first of the month or the 15th, any date that works best for your business.
Make sure your invoices and statements include the following:
– Your address, URL, email address, and toll free number if you have one.
– Your price, any discounts, and a final and total price.
– Delivery specifications or directions; always include a phone number.
– Your payment terms.
– Your discount program in detail.
– Any late fee or interest program in detail.
– Notice that you will seek compensation for any debt-recovery costs if not paid according to your terms and conditions.
Here is an example of how your payment terms may be set up, but this would be customized for your particular business:
Example of Payment Terms
A. Payment terms are net thirty (30) days from the date of invoice. Seller reserves the right to require alternative payment terms, including, without limitation, a letter of credit or payment in advance.
B. If payment is not received by the due date, a late charge will be added at the rate of one and one-half percent (1.5%) per month eighteen percent (18%) per year or the maximum legal rate, whichever is less, to unpaid invoices from the due date thereof.
C. All payments by check should be sent to:
All payments by wire transfer should be submitted to:
Your bank name, address and contact person.
D. If buyer is delinquent in paying any amount owed to seller by more than ten (10) days, then without limiting any other rights and remedies available to seller under the law, in equity, or under contract, seller may suspend production, shipment, and/or deliveries of any or all products purchased by buyer, or by notice to buyer, treat such delinquency as a repudiation by buyer of the portion of the contract not then fully performed, whereupon the seller may cancel all further deliveries and any amounts unpaid hereunder shall immediately become due and payable. If the seller has to retain a collection agency or lawyer to collect overdue amount, all collection costs, including attorney fees and court costs shall be payable by the buyer.
E. Have a line under these statements on everything you print them on and have the customer sign and date it, keep the original and give the customer a copy.