Sending a clear message to customers about when and how you expect to be paid will help you manage cash flow and maintain good customer relationships.
Payment terms define what credit facilities you will offer customers. Standard terms for credit include payment within 7, 14 or 30 days after the invoice date.
Setting your customers’ terms shorter than your suppliers’ terms can help you avoid being out of pocket.
Many businesses exposed to credit risks will offer other types of payment options or request that customers pay part of the invoice before or during service delivery.
Things to consider when setting payment terms include:
- types of payment
- credit limits
- early payment schemes
- legal requirements
- customer credit worthiness.
If you decide to offer a credit option, consider making it your policy to conduct a credit check, particularly if you risk being exposed to a large single debt. The credit check application form should specify all terms and conditions.
Check the costs involved with credit card and other electronic transactions. You may need to add a surcharge to cover them.
Make sure your payment terms are clearly displayed on your invoices.