Negotiating Invoice Payment Terms to Your Advantage | Behalf
5 Tips to Setting Your Business Invoice Payment Terms
You started your business for a reason. Maybe it was to share your passion with the world. Maybe it was to provide a service to those in need. Whatever the reason, your business requires capital to operate. When it comes to business: money is power. And while you may be making money, getting customers to pay you what they owe in a timely fashion is the tricky part.
Often small business owners shy away from setting strict payment terms and enforcing them in fear that their customers will leave. However, giving customers the upper hand in this scenario can be a dangerous precedent to set. The exchange between a business and a customer is just that: an exchange. Customers are in need of your services just as much as you are in need of compensation, and you cannot be shy about setting fair and reasonable expectations, especially with invoice payment terms.
Conversely, you are also a customer of your suppliers. You will not be able to make your payable schedules if your own customers are taking advantage of your lax approach. Falling behind on your own payments could threaten your supplier relationships and constrain your ability to produce the highest quality goods at a market price. Then you would have bigger issues than getting your customers to pay faster. There is a virtuous cycle in the small business world and it only works if you work both sides of the equation.
Below are 5 tips on determining the appropriate invoice payment terms for your business, keeping your customers on track, and troubleshooting problem payers.
1) Be Nice But Firm
You do not need to sound robotic with your invoice payment terms. In fact, research shows that polite businesses that thank their customers on invoices have a higher chance of receiving payment. The trick is to be exact in your wording. Instead of using billing terminology, like “net” in reference to the net 30, net 15, etc., thank your customers for remitting payment by a specific date. You can, of course, still base the payment date on a unit of time, but this approach leaves your invoice payment terms less open to interpretation.
2) Charge Interest
All deadlines are more well respected when missing them comes with consequences. Motivate your customers to pay on time by clearly communicating a late payment penalty. How to determine an appropriate interest fee? It should be high enough to motivate them without being offensive. Consider your cost to revolve such a balance on your credit card as a benchmark.
3) Make Payments Easy
Giving your customers convenient options to pay will always increase your on time payment rate. Enable an online payment method so that customers do not have to drop off or mail checks. If you can find one with automatic or recurring payments, that’s even better. Also consider offering financing through a third party to help customers stay current even when their cash flow might be low. Think about how you like to make payments to your suppliers and pursue the same methods you enjoy.
4) Number Your Invoices
You must develop an effective invoicing system to keep customer payments organized. Numbering your invoices will help you and your customer keep track of their payments. This will prevent duplicate charges and help you navigate billing records in the future. Billing errors – human or otherwise – are a key factor in late payments.
5) Keep it Short
Keep your standard invoice payment terms as short as possible per your industry standard. You will always have customers that push the envelope, dragging out their payments 15-30-60 days past due, so maintaining a short standard will help you manage your risk. Anything longer than Net 30 becomes completely unsustainable to support the stragglers. This is commonly referred to as the “net 30 trap.” Net 30 terms are often abused by customers.
The reality is, you may have taken all of the right steps to carefully set up invoice terms and still have a few customers that refuse to pay or pay late. You don’t want their negligence to cost you your business. Protect your working capital with a line of credit, ensuring you can cover operational costs, short term and immediate business expenses. Behalf offers a purchasing line of credit with flexible payment terms and no hidden fees. Find out if you qualify today to immediately increase your purchasing power. You can create a payment schedule for each purchase, giving yourself up to six months to fulfill payment. Numerous situations could cause your growing business to develop a gap in working capital. A Behalf credit line is the tool you need to cushion your capital reserve from temporary dips in revenue.