Surface Ripples

Payment Terms - Get Them Right

I had a fascinating discussion with one of our business clients. The issue was the meaning of “30 days“ payment terms.

Previous experience suggests that if one says that one’s practice is a 30-day payment period, then the person who is expecting payment should receive it on or before the 30th day after date of the invoice (or max. 30 days after invoice received). When I questioned the client on why their customer were quoting 30 days payments but then stating my client could expect payment after 44 days, the response was “they said management needs time to approve”.

Professionally speaking, when one asks for or states that one will pay within a certain timeframe, the timeframe should include sufficient time for all processes involved in the payment of an invoice to be carried out within the timeframe allotted.

It is not for me to judge, but I would consider it unprofessional to state payment will be made within 30 days but not to mention the fact that it might take an additional 14 days for management to approve the invoice. In this case it would be more professional (and dare I say, more ethical) to say that payment will be made within 60 days.

The reality of the situation, however, is that suppliers are more often than not in a weaker position. One can take the matter before the courts, but the likely outcome, even if you win, is that you will lose that buyer’s business.  If it’s a large client who gives you high volumes and values of business, this would be an act of corporate self-destruction.  The exception is, if you decide that it is preferable to lose that customer’s business.

I do however believe that a business is absolutely within its rights to:

Stipulate how long it is prepared to wait after the date of an invoice for payment to be received

Chase the Client once the deadline for that invoice has passed

As long as the chaser is polite, it should have the desired effect of reminding the customer (courteously) that they owe money and that payment has taken longer than expected.  If one is diligent and can show a “paper trail” of reminders/equests for payment, then this reinforces the validity of the claim if the matter finally does go to arbitration.

Attempts at threats or penalties generally do not work unless one is in the position to make good on them (and to lose the business).

I’ve spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With a wealth of international experience in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management.  I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides a full picture of my portfolio of services.  For strategic questions that you should be asking yourself, follow me at @wkm610.

Labels: Customer Care, Financial, Risk

posted by William Martin @ 10:11