Why you need to review your payment terms
In small business, we all have certain ways that we do business. We have procedures to ensure we do our work in a timely manner and we expect payment for this. Some of us are more flexible, while others have strict contracts in place.
Potentially, the businesses with contracts in place are the ones who are likely to have had bad experiences in the past.
Not getting paid
Often people who are not paying you are also not paying everyone else in their lives. From their phone bill to their gardener, everyone is getting paid late or not at all.
It may surprise you that many bad customers go out of their way to get work done without ever having the intention of paying. If only these people came with a warning!
Are you a good payer?
Small business payment terms
Yes, it goes without saying that we should all have clear terms and conditions – that potentially no one reads. However, there are aspects of these terms and conditions that should be made clear to everyone you are going to do work with.
Obviously, some businesses like builders tend to have very strict terms and conditions but they are also within an industry notorious for not paying. Even with contracts in place, many builders experience not getting paid.
Business terms should include
Reference – www.latepayerlist.com
- What you are going to offer (your good or service)
- What it will cost your customer
- When this cost/s have to be paid
- The payment methods you accept
- And what happens if your customer does not pay (debt collection policy)
You can go to a lawyer and ensure that you get your terms and conditions as strict as possible and as relevant to your business as they can be.
Extended payment terms
As a small business, you generally cannot afford to bow to extended payment terms. 30,60 or 90 days is just too long for small business. It is however very common for the big end of town and large business have been doing it to manage their cash flow more effectively. That said, small business who deal with big business can experience real issues with getting paid.
In small business having a COD, 1 day or a maximum of 7 days should be far more common.
Also when you can, look into potential clients track record of payments.
What are your payment terms like?
When you first start working with someone you may not immediately know they are going to be a bad customer. If they are immediately bad it is easy to not get caught out. You can choose not to work with them in the first place.
1st Clue: Often these bad customers begin as some of the loveliest you have ever met. They are so lovely that you perhaps bend the way that you usually do business to accommodate their needs. As they are so nice you are lulled into a false sense of security and think that you will not be caught out. If your policy is to get paid upfront, you may just invoice at a later stage and become their line of credit. How nice of you!
2nd Clue: Are you receiving a lot of questions about your quote, questioning every little thing after they have accepted your quote and you have started working, but they have not paid your invoice yet?
3rd Clue: Maybe you have a gut feeling and you should always listen to your gut. However, as above they are so nice that they couldn’t possibly do the wrong thing.
4th Clue: People who owe you money continue to ask for more work and tell you they will pay you in the next payment cycle.
Asking for money
No one likes to have to ask for money and yes it would be a whole lot easier if everyone just did the right thing. This just isn’t the world we live in.
So, ask politely, then ask firmly – Politely is with follow up reminders and perhaps even a phone call or two. Beyond this firmly is utilising a debt collection service and ensuring that the customer knows they need to pay.
Remember that we all deserve to get paid for the work we do and just because a bad customer decides they don’t want to pay it doesn’t mean you should not get paid.
How do you ask for money you are owed?
Much of the content throughout this week’s blog has been referenced from Late Payer List who is my debt collector of choice. I can say that I have only used them for 2 debts and both times I know exactly why they ended up bad debts. I cannot say that I won’t make the same mistakes or that people will not be bad customers in the future. It is vital though that we learn from our small business mistakes and work harder to not repeat them in the future.
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