How do terms of business help me get paid?
Today we’re going to be talking about why terms of business are important to help get you paid. With terms you’re setting out your expectations early. To do this you need to make sure that you cover off exactly how and when you expect to get paid.
Details needed in a contract:
- What do you do? You need to start by establishing who you are. What’s your company name? Where’s your registered office? What’s your registration number? Tell them all the information they need to know about you.
- The next thing we need to clarify is who they are. What’s their company name? What’s their registered address? What’s their registered number? Make sure that you’re invoicing or you’re contracting with the right legal entity. The way you know someone may not be their legal entity.
Top Tip – Contracts should always be with the legal entity, so make sure you clarify this with your customer.
How do you expect to be paid?
Next we need to ascertain the payment method. How would you want them to pay you?
DD – If you want them to pay you by direct debit, then state that. State which day of the month the direct debit will be coming out. Include the direct debit mandate form.
Fill in as much of it as you can. Give them as little work as possible to do. This will encourage them to pay by direct debit.
BACS – If you want paying by BACS, make sure you include in contract your account name, your account number, and your sort code. Again, make it easy for them to pay you.
Credit Card – If you’re going to take payment by credit card, put a link on your invoice. Let them just click it, and then to the details. Most accountancy software will let you do that nowadays if you’re using cloud-based.
Cheques – Should you want to offer the option of paying by cheque then that’s really simple. Do consider that with a cheque you need to receive it, it’s got to be posted to you so you’ve got to go to the post box, pick it up, you’ve got to receive it.
You’ve got to make time to go to the bank to pay it in. You’ve got to make time for it to clear until the funds are in your account, and you’ve got to make sure that they actually fill it in correctly. Although I’m not saying don’t use checks, think about all the added time it will take you for checks.
You still have to do all the Bank reconciliations and all the rest of the stuff that you will do with direct debits and BACS as well, so you’re not saving time on that front either.
Top Tip – If you do use cheques, put in an administration fee. That’s more than acceptable. It doesn’t mean you’re going to apply it, so if you deal with charities who can only pay by check, it’s your discretion to waive the fee.
Clarifying your terms within your terms of business!
You also need to set out your terms. By terms I mean your credit terms.
If you don’t specify any and you’re based in England, then the court rules it’s thirty days after the invoice date. There’s no reason that you have to give thirty days.
Think about taking money up front. Think about doing staged payments. Definitely, definitely state how many days after the invoice date your invoice becomes overdue.
Also tell them what will happen if they don’t make the payment date. Are you going to stop the service? Are you going to terminate the support contract? Are you going to keep the copyright until it’s paid? Are you, if you deal business to business going to impose the Late Payment of Commercial Debt Interest Act 1998 as amended?
Why clarify your action arising from Non Payment in your terms of business?
Have a think about the consequences of non-payment. Make sure you put those in there. Clarify exactly what will happen if they don’t pay you.
By stating this at the beginning you look professional, you look experienced, you’re building up that trust relationship that’s so important in business. You’re setting out your expectations.
It doesn’t have to be a big document. It doesn’t have to be a complicated document, but make sure that you get them to sign it and you sign it. Give them a copy. You keep a copy.
It really is simple to set out payment expectations. It’s not what you set up in business to do. You set up in business to do what you’re passionate about. Don’t let that put you off getting them written. Get them written. Get them sent out.
The impact on businesses that have terms and payment terms specifically are that they get paid more often on time. Do have a think about what terminology you use in your terms. Being polite is really important, but being clear, being specific, being measurable, having an impact and not conforming even, to the terms and conditions you set out. Tell them from the start. Make them aware of consequences of non-payment. Build that relationship with them.