Net Terms in Procurement: Payment Agreements and Timelines
Payment terms are imposed to ensure that payments are received by suppliers within a reasonable period of time. One late invoice can put net terms a small business’ finances in jeopardy. Delinquent payments from customers and slow periods can drastically reduce a company’s cash flow.
The best invoice terms you may want to consider are the ones that get money in your pocket as soon as possible. Installment agreements are similar to line of credit payment terms, except they’re cash-based. The bottom line is to align your net terms with the final amount charged to your clients. If the price is quite expensive and cannot be easily settled in a single payment, then that’s when you offer net terms. You can still offer net terms to your customers even if you are not a freelancer or if you are not in the business of catering to other companies or supplying products and raw materials.
How to decide whether net payment terms are right for your business
On the other hand, choosing the most suitable net terms will also depend on the items and services offered. Fast Capital 360 helps support your financing strategy by pairing you with lenders who meet your qualifying criteria. To find out what loans you may prequalify for with no obligation, take a few minutes to fill out our free form and see your loan options. Because of these possible variations, exact terms should be spelled out in contractual agreements.
Maintain full visibility over the invoicing process and reduce late payments with automatic direct debits. You’ll also be able to reconcile these invoice payments automatically, freeing up time and money. Advance billing can improve your cash flow and reduce the risk of losing money. Getting paid in advance can be a major benefit for businesses—many companies sweeten the deal by offering discounts to customers who pay in full upfront. While there are many benefits to offering net terms, there are also a few challenges to be aware of. This can also add additional work and complexity when reconciling payments to your accounting software (such as QuickBooks Online) or invoicing software.
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Consider outsourcing the management of your net terms to a partner like Resolve Pay, which also decreases your risk, streamlines your financial operations, and improves your financial velocity. Learn how you can offer net terms on your terms with a free trial today. Processing and managing net terms create more administration and add more steps to your back-end processes than you probably realize. Since your payment cycle will extend, your internal operations may need to change to accommodate deferred payment terms. The timing around when your client pays you will ultimately affect your working capital.
Just like anything, net 30 payment terms have their pros and cons. If you don’t have a standard contract that you use with customers, you might want to ask a lawyer for help drafting one, especially for larger deals. While this can cost some money up front, it will be worth it in the long run, especially if there’s ever a dispute about your bill. It also says the Winnipeg-based company has placed its first order under the agreement for a minimum of 100 fuel cell modules for planned delivery this year.