In the long list of payment terms examples, cash upon completion is probably the most familiar to many of us in our day to day lives – think of it as a more general version of cash on delivery, or ‘COD’, which is the rule applied by many tradespeople and small businesses.
To the casual observer this might seem like it removes any credit risk from the company (or sole trader) involved, as you receive payment at the same time you fulfill the order – but it’s not that simple.
Often there will already be a financial expense incurred, such as in procuring the necessary stock to fulfill the order, and non-payment on completion leaves you to suffer that expense.
There is also the time taken in working on the order, not to mention any additional labor costs and expensive processing, reconstruction or general reworking of the materials.
For all of these reasons, in that hypothetical list of payment terms examples, cash upon completion is also one of the most misunderstood.
Far from removing all credit risk, it represents a kind of compromise between the supplier and the customer – an agreement to act in good faith.
It means that, for example, an artist can show the finished work to the customer but does not have to hand it over and relinquish their copyright until payment is received.
That makes cash on completion a very powerful payment term – to use another example, a web designer might state their right to retain administrator access to a client’s website until payment is received, and to delete the site if it is not paid for on time.
You still do the work upfront, but you have the peace of mind of knowing you will get paid for it immediately, and can take action if the money doesn’t arrive promptly.
As with all payment terms, it’s important to agree in writing before you begin any work at all – you can’t simply invoice later and demand immediate payment.
Make your terms very clear, especially with terms like cash on completion, when clients might be expecting to be given 30 days to pay.
As long as you do this, and clearly outline what actions you will take if payment is not made, you should be well covered against customers who try to take 30 days or longer to pay you once the job is done.