How to: agree payment terms
Agreeing payment terms up front with the firms you are working for or supplying can help you get paid quicker. Here’s how to do it…
Having to wait a long time to receive money you’re owed for work or goods and services you’ve supplied to a firm can put huge pressure on your cashflow, so it is critical that you agree payment terms before commencing work. Some firms’ standard terms might be as long as 90 or 120 days, which can cause real issues for suppliers – especially if you’re paying your own suppliers or staff on shorter terms.
But there are things you can do to negotiate faster payment terms. Here are a few tips:
1. Start early
It’s no use trying to agree a shorter payment term once your invoice is already in and when you already desperately need the money. Once your invoice is in the system, it’s unlikely it can be changed – so raise the payment terms before you agree to take on the work. Ask what the firm’s standard terms are and, if they seem long, see if there’s are willing to reduce them.
2. Explain why it’s important to you
While bigger firms will often have set payment terms, most reputable businesses will do what they can to help you if you explain the situation – especially if they want to attract the best suppliers. Explain that your own cashflow relies on it and that it would help you out if you could agree a shorter payment date. Do this on a call rather than in an email – as it’s easier to explain in person.
3. Agree payment terms in writing
If you do agree shorter payment terms, get the person you agreed it with to follow up with written confirmation. You should also mark the payment date clearly on your invoice. Then, when you’re submitting your invoice, add a note explaining you agreed shorter payment terms. List the name of the person who agreed it and copy them in when sending it.
4. Get a finance contact up front
When you agree the shorter terms, ask for the name of someone in the finance or accounts team who you can contact if the firm doesn’t stick to the agreed terms. Then you can chase up the payment a lot easier than if you were starting from scratch.
5. Be reasonable when you agree payment terms
Many firms will try to pay more promptly if they know it will help you – but be reasonable. It’s unlikely a company will be able to pay you within a week of submitting your invoice, but they may reduce their payment terms from 60 to 30 days, for example.
Discover more tips to ensure prompt payment here.