Regardless of if you are dealing with a small client or a large corporation. Or, if you are the one drafting the agreement or your client’s legal department there are few guidelines that will reduce delays in payment.     

At first glance, payments should be easy. You deliver the product and client pay X dollars. In real life, things are little more complicated. The golden rule of collections is- every time there is an uncertainty, payments will be delayed. You have to answer some questions to get paid on time.

Description of goods/service provided – to get paid, you must define first what is it that you are selling. Every time you will be unclear, your client might think that you have not delivered in full and they are entitled to more of your time, additional service for goods, etc. You must be very clear about quantities, what is actually included and when and how this is going to be delivered. Any disagreement will lead to withholding payment or a portion of it to you until the client is satisfied (beyond your initial scope).

Pricing – in order to determine this X of dollars you should receive, it must be stated clearly in an easy to understand way. This has to be both for you and for the client. If there are add-ons or anything that isn’t included in the base price, it also must be stated clearly. This is how you avoid any arguments and dissatisfaction later on.

As a side note, defining your pricing structure in the contract will allow you to run your business better and understand your profit margin and the value of your proposition. As your council will probably tell you (and this is true for most of the western world) everything that can be interpreted both ways goes in favor of the party that didn’t draft the contract – which means that if you were not crystal clear with the terms, and pricing especially you are setting yourself up for disappointment when it will be your time to get paid twice. First, since your payment will be delayed while you argue about the amount, and second when you will lose the argument and receive less money than expected.

Taxes – have your legal adviser to add a stipulation about taxes, to be exact that your price excludes any ( a common practice in most places). You never know the legal situation of your client and don’t need to assume their status. Having X price with taxes excluded makes it easier for you to calculate your cost and margins.

Payment Terms – an art of itself. Every industry has more or less standard payment terms that are usually used. If your client is not an industry insider, he might not be aware of it. Such terms best to be shown clearly. Net 30/45/60/90/120/etc. are common. Another option is payment upon delivery or according to milestones – as always such milestones must be as clear as possible. X date is also great solution as it is very easy to agree on.

Payment Schedule – depends on nature of the deal you might want to invoice your client one time on monthly/quarterly/annual basis or maybe according to certain milestones. Set terms that suit your client and you to avoid arguments, for example, you expect to be paid every quarter 1/4 of the annual contract amount, while the client might hold the payment until X is delivered. Give them what they want, they will get it anyway, but this way you can prepare yourself.

Payment Methods – payment method agreed upfront will help you to in the long run. If your set-up allows you only to receive ACH payments, make your client aware of it at the negotiation stage so they won’t be surprised and will have to work for a while with their finance team to arrange a wire. Same works for any other method, including cryptocurrency.

Bonus tip – when you work with international clients or payment is set in foreign currency it must be perfectly clear either it is a baseline or the payment has to be made in the actual currency, and if it is a baseline what conversion rate is used to calculate.

Payment Contingency – larger corporations may need extra documentation release payment. W9 is a basic requirement. Vendor setup form asking you several questions about nature of your business and for your bank details are a standard practice as well. Many also will ask for PO (Purchase Order) number, even if you have a signed contract. Best practice is to incorporate everything upfront into the contract. This allows you to concentrate on delivery and not to worry too much about getting paid on time.

 

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