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Invoice Payment Terms

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Old 05-02-10
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Hello everyone,

I'm after some ideas on changing Invoice payment terms. At the moment my invoice payment terms are net 30 days and I'm finding it difficult at the moment due to not having steady cash flow. I'm thinking of changing payment terms to 14 days and was wondering if other people have done this and what would be the best way to inform existing clients of the change. Does anyone here on the forum have a sample letter that I could use or could point me in the right direction??

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Ellissac

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Default Re: Invoice Payment Terms

Hi Elissac

Mine are 14 day terms with a harsh line underneath basically informing clients that lodgements and future work will cease if payments are not made on time.

I don't think you need to write them a letter specifically about the change. Why don't you simply update the invoices to your new terms and maybe insert a more bold line around it saying something along the lines of "Please Note New Payment Terms - We Appreciate Your Understanding"

Janna

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Default Re: Invoice Payment Terms

Thankyou for the prompt reply, my partner mentioned this approach last night. This seems like the easiest way to go about it.

Ellissac

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Default Re: Invoice Payment Terms

Hi Ellissac,

I have heard to expect payments of 30 day accounts in 3 months, 14 day accounts in 1 month and 7 day accounts in 2 weeks.

When I was working for a solicitor, he used to offer a discount for payment within 7 days. That is what I will be doing. (You might want to increase your rate slightly to cover the discount depending on your charges).

Hope that is helpful!

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Old 05-02-10
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Default Re: Invoice Payment Terms

Hi there
Ways of informing your client

Perhaps instead of changing the term of payment you go a different way and you have a due date e.g 19th Feb 2010 (14 days). Just an idea I have seen it on a few invoices that clients have.

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Last edited by Everyday bookkeeping; 05-02-10 at 02:23 PM.
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Old 05-02-10
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Default Re: Invoice Payment Terms

Quote:
Originally Posted by FletcherTax View Post
Hi Elissac

Mine are 14 day terms with a harsh line underneath basically informing clients that lodgements and future work will cease if payments are not made on time.

I don't think you need to write them a letter specifically about the change. Why don't you simply update the invoices to your new terms and maybe insert a more bold line around it saying something along the lines of "Please Note New Payment Terms - We Appreciate Your Understanding"

Janna


Not so sure about this. It depends on the customers.
If I have a supplier that I source something from only occassionally I am happy to deal with what ever terms they dictate and they may and have changed these.

However, if one of my more important suppliers wanted to change the terms of business with me without a phone call or letter I would be annoyed and I would probably ignore it until they did give me the courtesy of a phone call. I see the payment terms as very much a part of the package that I use to decide who I buy from. If one of my major suppliers wants to change this I would expect firstly a call from the rep explaining the situation and at least a month of notice to give me time to evaluate how this changes (if at all) my relationship with that supplier.

Are you doing this because customers are not sticking to existing terms? If so I would enforce those first rather than tightening terms which are not going to be enforced. Start new accounts on 14 days (or whatever) terms but I would think about each of your existing customers individually and determine your approach on how it may effect your relationship with them.

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Default Re: Invoice Payment Terms

Steve some good points, I know what you are saying exactly. I have customers who are big multi national clients and they go by their terms so no I wouldn't be enforcing the term change on these types of clients If I done this they would probably go elsewhere. I use Xero for invoicing and the invoices have the due by date as mentioned by everyday bookkeeping, I also like the idea of a discount if payed within 7 days.

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Default Re: Invoice Payment Terms

Hi Ellissac

Payment terms are tricky and really depends on your client base and industry. You will find payment terms are mostly ignored by a large number of business owners in most cases, all we can do is monitor and take action.

What we do to improve our cashflow is not limit invoicing to end of month, we have two invoicing cycles mid and end. Our terms are 7 days. By having a short due date this allows us to get on the phone on say day 10 and ask the client for payment, we find this works as you then get pushed to top of there payment list.

It is important though that you also plan your cashflow to be able to take a hit when clients are slow at paying.

I agree with Steve if I was a regular client I would want to be advised and given a months notice, as it would have an impact on my cashflow as well.

It may also be worth asking for an upfront deposit if you can in your line of work, that should go towards helping with cashflow.


have a read of this article http://www.thebrew.com.au/_webapp_24...cting_the_Cash

Would love to hear more on how you are finding Xero

Good luck with it

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Old 15-03-10
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Default Re: Invoice Payment Terms

Unfortunately the reality of Business to Business life is that credit terms get extended - the average debt turn (no. of days a customer takes to pay) within the Aussie economy hovers around 55 - 56 days (source Dunn & Bradstreet) - and most companies will offer 30 days (maybe 30 days end of month).....so the commercial reality is that customers will pay late.

If you now turn it on its head this also reflects on your supply side - I am sure we are all guilty of paying some of our suppliers a little after terms - it becomes a question of "power" - who needs whom most.

Larger companies pay when their systems allow them to pay - they have cheque runs (as they used to be called) which systematically pay suppliers on a nominated day.

If you are being stretched by your customers and it is causing some cashflow issues you might want to consider factoring your invoices - wherein you raise an invoice to a customer and you get 80% (in certain cases up to 90%) against the invoice from the factoring company up front (the remaining 20% is paid to you when your customers pay the factoring company). They will usually charge you a fee for this service - anywhere between 0.1% - 2.5% of invoice value (dependent upon your turnover) with the cost of borrowing the funds of around 11%-12.5% p.a. - but the borrowings are NOT generally secured on your real estate - usually only on the invoices and business itself. In the right circumstance they can also provide credit intelligence and insurance (to help work out who the bad customers are)

We have created a whitepaper (free) - called "Factoring 101 - the basics you need to know" which will help you with a basic insight into how it all works and the pros and cons and we also have a series of videos to show you how it works.

Unfortunately poor cashflow is one of the greatest inhibitors of small business growth.

Hope this helps

Regards

Tim Lea
www.cashstream.com.au

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Old 15-03-10
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Default Re: Invoice Payment Terms

I cut out all these payment terms and just use CASH on COMPLETION.

Works a charm, every one knows exactly what they are up for and in the last 15 years Ive never had a bad debt.

Start operating on a cash basis only, NO credit.

The majority of my customers didnt have a problem with this when I changed over from a 30 day account system to cash on completion. Its about educating your customers. They expect to collect their wages or salaries regularly so do you, so stop pussyfooting around CASH on completion.

Remember you have worked very had to earn this money so ASK for it dont give discounts or credit because thats how you attract BAD DEBTS.

One of my companies used to do a lot of work for Managing Agents of properties owned by one of Australia's wealthiest men. Unfortunately two of my employees were involved in an accident and did not let me know until several days later, consquently we lost a very nice contract and the manageing agents refused to pay us. I'm talking several thousands of dollars here. I wont go into the boring details but it cost me a small fortune chasing what they owed.

Dont fall into the trap of being a credit facility for you clients ( they have more money than you ever will) so become payment on completeion.

Let those in you industry who are desparate offer dicount term but stick to your guns . Initially you may loose a little bit of business, but your quality and honesty will bring these customers back, and they will bring others.

Bite the bullet you are a professional who does quality work at a reasonable price so WHY are you DISCOUNTING.

PAYMENT on completeion or better still a deposit so that you can start the project and then balance on completeion.

Just remember the customer NEEDS you as much as YOU need them, so why DISCOUNT your services.

Thats my opinion.

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