by Christian Zigler
Our friends at Billy’s Billing wrote an excellent post that states how to negotiate payment terms and conditions successfully. Since we found the blog post extremely interesting we decided to provide you with a short version of their post.
Very few people are comfortable talking about money, therefore, to avoid uncomfortable situations, you must be transparent with your customers.
Setting your payment terms
Have a policy which clearly states your terms of business and terms for invoicing leave no room for negotiation in the payment process.
Start-ups should deal with cash up front keeping invoices to a minimum, this is indispensable for a healthy cash flow. However, if you decide to send an invoice, make sure the client is a legitimate business with a solid track record and make sure you receive your payment as soon as the job is completed.
You must clearly state your payment terms and expectations on every sale and have the client sign off on understanding these stated terms. You can also offer early-payment discount or late fees on all amounts overdue.
Invoicing and payment reminders
A poorly laid-out invoice will annoy and frustrate your customers so make sure your invoices are well designed and easy to read.
Considerations when designing an invoice:
- Should state it is an official invoice
- Identification or invoice number
- Your company’s information: name, address and telephone number
- Invoice date and due date
- Customer’s contact details
- Detailed description of the each item or service you are charging for
- Sub-total amount of each item or service, taxes, fees, refunds or discounts
- Acceptable payment methods including bank details
- Encourage prompt payment by offering a small discount for accounts paid on time and state late fees on any overdue amount
After sending your invoice, follow-up with payment reminders. This is a very effective technique, easy and cost-effective!
Debt collection and getting paid
A prompt payment discount of 2-5% is a proven incentive that will ensure 95% of your invoices are paid on time.
To discourage late payments, you can charge a monthly late payment fee of 2-3% on any overdue amounts. This must be clearly stated in any contracts and at the bottom of your invoices.
For large jobs or orders, it is recommended asking for a 15-30% deposit. This will help you judge the client’s ability and willingness to pay.
Remember you want to build your business by dealing with A-grade customers, not unreliable, high-maintenance ones.
If you want to read the entire blog post, by Billy’s Billing click here!