As a small or medium business owner, chasing payment from customers or clients is never fun. Its usually time consuming and stressful. 

Written contracts and payment terms agreed before supplying your products or services can help. Below we look at 3 key ways:

1. Clear rules for payment

So many businesses, especially when starting out, will offer their products or services without any written contracts or terms and conditions. This can work out fine initially. This is until someone is late with a payment or not paying at all.

A contract and payment terms, agreed before you sell to your customers or clients, can provide a very clear set of rules for when and how your business must be paid. This written evidence of the agreed payment requirements leaves little room for a customer or client to argue about when and how they must pay your business.

Additionally, as soon as non-payment is an issue, the written and agreed payment terms give the business owner legal contractual rights they can follow up and enforce. 

2. Consequences or incentives 

Payment terms are not just about when and how a customer or client needs to pay. A contract or set of payment terms can also include consequences for non-payment. For example, this may include a right to change interest on overdue amounts. It could also include a right for your business to suspend your supply of products or services.

Consequences for non-payment can deter a customer or client from paying late or not paying at all. They can also provide a business owner with additional contractual rights when payment is not made on time or in full.

On the flip side, the payment terms could offer incentives. For example, if certain eligibly criteria is met, a customer or client may receive an early payment discount. Incentives for payment provide a positive tool that can motivate customers or clients to pay your business. 

3. Deposits and progress payments

Requiring a deposit for your products or services in your contracts is another way to protect your cash-flow. It can also help protect your business from larger debts owing at the completion of your service or product supply. Progress or milestone payments are also recommended, especially if the contract is for a high-value transaction. Progress payments assist with cash-flow. Regular progress payments can also reduce the size of debts or raise red flags in the event a client or customer gets into financial trouble.  

As highlighted above, having solid payment terms agreed before you supply your products or services to customers or clients can help protect your business from non-payment. 

If your small or medium business needs help with contracts or payment terms, click here to book a free discovery call with SLB Legal today.