Posted on 18 September, 2019 in Advice, Small Business, Cash Flow

Payment Terms Yours or Theirs?

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What does “on time” mean to you? Payment terms can vary from Cash on Delivery (COD), 7 days, 14 Days, 21 Days, 30 days, 45 Days. There a couple of things to consider when you’re working out what your payment terms should be;

  • Are you completing a high volume of low dollar value one-off jobs?
  • Are you providing project services and invoice at milestones?
  • What payment terns do you need to meet with your suppliers?
  • How often are you paying wages?

Let’s work through these;

Completing a high volume of low dollar one off jobs

  • Typically your mobile tradies and hospitality business will fit this. At the Café you have to pay on the spot for your coffee, so why should a mobile tradie expect anything less. Time and time again I see small trade operators; plumbers, electrician, handyman’s leave the job site without completing an invoice and getting payment. This frustrates me because the technology available today makes this process so easy.

Completing project work and invoicing at milestones

  • Payment terms can change depending on the length of the project, if you expect the project to be wrapped up in 30 day period your progress payments will have 7 days payment terms. If your generous you may give the client 14 days to make the final payment.
  • If the project is covering a longer period you can adjust the payments terms to fall in line with your own supplier payment terms to ensure your receiving cash at the exact moment it’s due to be paid out (in a perfect world)

How often are you paying wages

  • Wages can be the single biggest expenses in business and you can’t leave yourself short. You need to be 2 steps ahead of the game, if your terms are 7-14 days invoices you send out now are going to be paid in time to cover wages on a fortnightly basis.

You need to be upfront with your clients about your payment terms and implement systems to enforce these.

The next video in this series is: How Debtor Days Impact your cash flow