Business woman discussing payment terms

In providing remote bookkeeping services to numerous companies, at MM Accounting we understand how fiscal needs vary by industry. However, the need for payment remains consistent. When organizing contracts or selling products to clients, the payment terms dictate the logistics of your agreement.

Mastering the art of coordinating payment terms will ensure that your company has a consistent cash flow, and that you do not experience a cash shortage.

What are Payment Terms?

Beyond simple transactions in which the entire amount is paid up front, all sales should have clear payment terms. Payment terms govern the schedule of payments.

They also prevent any misunderstandings that your customers might have in the future. In addition, they detail the reasoning behind the rates, and any complications that might be present.

Write With Care, Not Haste

It’s easy to think of payment terms as the fine print that no customers will notice. However, this perspective won’t benefit you long-term. Avoiding payment terms entirely, or sloppy terms that fail to articulate any concrete boundaries is hurtful to you. Additionally, the practice of marking invoices as “paid” before they’ve been settled will be extremely confusing as well.

 

Examples:

Generally, payment terms are fairly straightforward. They stipulate the amount of time that the customer has to pay, and the method of payment. These are some common phrases you’ll find within payment terms:

  • Net 30- The payment is due 30 days after the date of the invoice
  • EOM- The payment is due at the end of the month
  • CIA- Cash is required before the product can be received/work can be started
Elderly Couple Discussing Payment Terms

While these terms are the most basic, our virtual CFO services can help your business to devise specific strategic payment terms.

 

Improve Cash Flow

Cash flow is simply the amount of cash that moves in and out of a business. When a business has a steady income stream, and this total is greater than its debts, they have a positive cash flow. When a company’s debts are greater than their income, there is a negative cash flow.

Cash Flow

Cash flow is simply the amount of cash that moves in and out of a business. When a business has a steady income stream, and this total is greater than its debts, they have a positive cash flow. When a company’s debts are greater than their income, there is a negative cash flow.

By including payment terms in each sale, you can ensure that your business maintains a regular, positive cash flow. Consistent, timely payments will ensure that your business is not owed any outstanding fees. They’ll also ensure that you can continue to make lucrative investments.

Without proper payment terms, your customers might fail to remember (or intentionally delay) the payment schedule. Our remote bookkeeping services will help you to keep cash flow consistent.

 

Payment Terms Advice

  1. Communicate clearly with customers- Discussing the payment terms with your customers before providing any services is essential to an understanding relationship. Even if your company doesn’t permit any terms negotiations, be sure to clearly explain the payment terms.
  2. Put it in writing- Verbally agreeing on payment terms is nice in theory, but irresponsible in practice. Giving your client a copy of the payment terms will allow them to remember what they’ve agreed to.
  3. Require Frequent Payments- While one payment per month may seem logical, this schedule might ultimately prevent consistent payments. The longer a payment period, the later clients are likely to pay you back. The more frequent the payments, the more likely you will have a positive cash flow.
  4. Don’t Set a Date- Instead, dictate an amount of days that customers have to pay you back. When customers set a date, they will either delay payment until the day of or forget about it altogether. When you tell them that they have, say, 10 days to pay their bill, customers are more likely to pay earlier.
  5. Incentivize Early Payments- A small discount can go a long way in convincing customers to pay on time, or even early. If you can give even 3% off of the total price for an early payment, then customers will be more likely to pay for each bill. This percentage is a small price to pay for a nearly guaranteed positive cash flow.

 

Margo’s Bookkeeping: We Can Help You Encourage On-Time Payment

As bookkeeping specialists, we understand how to create payment solutions. We’re capable of writing payment terms, strengthening your business from home and fulfilling your company’s needs.

Contact MM Accounting for more information about how our virtual CFO services can help you maintain a positive cash flow.