What are typical problems with payment terms?
The following scenarios give examples as what can happen when businesses chase late payments:
Scenario 1 – verbal agreements
Tradesperson: ‘When we first spoke about the work, we agreed that you’d pay me within 14 days of getting my invoice – it’s well over that now.’ Customer: ‘No, I distinctly remember we said 45 days – it’s nowhere near that yet.’
The trouble with verbal agreements is that if things get sticky there’s no solid evidence about what was said – it’s just your word against the customer’s.
Scenario 2 – be clear about payment due dates
Business person: ‘My invoice clearly states that payment is to made be within 21 days.’ Customer: ‘Yes, but you didn’t mention these terms when we placed the order.’
You can’t just spring your payment terms on the customer like this.
Scenario 3 – be clear about payment terms
Customer: ‘I’m aware that we haven’t paid your invoice within 30 days, but our own terms are 60 days.’ Business person: ‘I didn’t know that’. Customer: ‘It clearly states this on the purchase order we sent you.’
Generally speaking, the last written document in the communication chain dictates whose terms apply. So, in scenarios like this, if you haven’t reiterated your own terms after receiving the customer’s order, their terms trump yours!
Scenario 4 – don’t bury important information
Customer: ‘It says 30 days in my payment terms.’ Business person: ‘Yes, can see that now but it’s buried in the middle of a lot of other text, and it’s in very small print. You can’t really blame me for not noticing it.’
If it comes to a legal dispute, a court might agree with the customer if they feel that you’ve not made your terms very obvious.
Scenario 5 – contracts
Business person: ‘I know the terms on your contract says 60 days, but I didn’t sign it and I’d like my payment now please.’ Customer: ‘But you did the work that was requested in the contract, so basically you’ve accepted our terms.’
If you carry out a job or deliver goods to the customer who’s presented you with a draft contract, even though you haven’t signed it, in some circumstances you might be deemed to have accepted it. This is called acceptance by conduct.
Scenario 6 – delays in payment
Business person: ‘You’ve always paid my invoices very promptly but now you’re saying it could take up to three months.’ Customer: ‘Sorry, but our new Head of Finance is insisting we stick more closely to our standard payment terms. You’ve been lucky that up until now we’ve been able to pay your invoices sooner than we’re obliged to.’
Even if you have a good existing relationship with a customer under whose payment terms you’ve been supplying goods or services, be aware that at any time they might enforce the terms more rigorously. Also they might change their terms so they take longer to pay in future, but for any invoices you’ve already raised they should stick to the previous arrangement.