As we often say, cash flow is the life blood of SMEs – even one late-paid invoice can leave you unable to meet your own outgoings – and protecting yourself against such an eventuality is all about putting in place the right payment terms for small businesses. But what are the right terms? Well, asRead More
As we often say, cash flow is the life blood of SMEs – even one late-paid invoice can leave you unable to meet your own outgoings – and protecting yourself against such an eventuality is all about putting in place the right payment terms for small businesses.
But what are the right terms? Well, as a general rule of thumb, most SMEs tend to work on 30-day terms by default, giving your customers roughly a month to pay you.
For those whose finance department processes invoices once per month, this means you should only have one outstanding invoice at any given time – making it harder for multiple invoices to get missed.
You might want to work on seven-day or 14-day terms, but if your customer only pays their invoices once per month, it may be better to work to their terms instead if it means you are more likely to get paid in full.
Remember also that if you are a small business, many of your customers and suppliers are probably small businesses too – so you need to protect yourself against any poor credit control on their part as well.
This begins with background credit checks to see how much of a bill you should allow them to run up before they pay you.
A sensible credit limit can then be written into their contract – and there’s nothing wrong with tweaking your payment terms for small businesses or for big brands.
Remember too though, big brands often take longer to pay, so if you want to be certain you will get your money promptly and in full, either ensure you have very clear payment terms agreed upfront (and be prepared for them to ignore these anyway) or set a credit limit you are comfortable with.
It can be difficult to do this if it means losing out on a lucrative contract – but if the customer doesn’t pay you within an acceptable time frame, and it leaves your company on the rocks, you have to question how lucrative the deal really is.
Ultimately, payment terms are there to protect you, but they should still be mutually agreeable – nobody’s going to agree to pay in full upfront, if they have no reason to trust you to deliver what you have promised.