Getting Paid: Your Guide to Contractor Payment Terms
Business owners that want to be paid need to feel comfortable asking to get paid. As a business owner or an independent contractor (IC), you need to get accustomed to the common payment terms for contractors and businesses, put systems in place to send out invoices promptly, and never be afraid to ask for invoices to be paid.
Prompt payment ensures that you have money to pay your bills and take advantage of any opportunities that may come your way.
What Are Payment Terms on An Invoice?
There are a lot of common payment terms for contractors and businesses. You’ll have the contract scope, obligations, and a plethora of other terms baked into your contract. Payment terms can be anything you choose, whether they be:
- Net 7, 10, 15, 30, 60, 90, etc.
- 2/10 Net 30
- Milestones
- Payment in Advance (common for contractors)
Set Clear Payment Terms
As a business owner or contractor, you need to set clear payment terms. Both parties will be agreeing to these terms, but they need to be written out clearly. For example, the 2/10 Net 30 terms provide a 2% discount if the invoice is paid within ten days.
You can use this discount as an incentive for clients to pay early.
If the invoice is not paid on time the terms may also include a penalty. You need to bake these terms into the contract, or they won’t be enforceable. You may charge a flat fee, such as $100 for each month overdue, or you can charge a 5% late fee per month the invoice is overdue.
When payment terms are clear, they offer you:
- Peace of mind that all parties know the terms
- A clear understanding of invoice obligations
- Recourse if the client decides to pay late
The next step after setting your terms is to make sure that you send out your invoices.
Send Out Your Invoices Promptly
Sending out invoices late or sporadically leaves you with less money in the bank. It’s easy to say, “well, the first is on a Saturday, so I’ll send my invoices on the third this month.” Two days doesn’t seem like much of a big deal, but if you have 10 invoices going out, two or three days can mean getting paid before the end of the month or not.
You should put systems in place to send out invoices promptly.
If you send invoices on the first of the month, schedule the invoices to be sent out a few days in advance. When you send invoices late, you risk being paid later.
What to Do If You’re Uncomfortable Enforcing Business or Contractor Payment Terms
If you feel uncomfortable enforcing your contract terms, you’re not alone. A lot of small businesses feel bad about giving the client that extra little push to get paid. You shouldn’t feel bad about asking for payment because both parties agreed to the IC payment terms.
But if you do have issues asking for payment, create an “accounting@” email account.
This will be your alter ego or “ghost.” You’ll want to give the person a name; for example, your account may be:
- Sally Jones
- Executive Accountant @ YOUR business name
You can use “Sally” as a way to enforce your terms without feeling bad. Psychologically, you may feel bad asking for prompt payment because you know a business is struggling this month, but Sally’s main job is making sure that all contract payment terms are met.
It’s easier to push for a payment when you’re acting as someone else.
One final tip: don’t feel bad asking for payments. You’re providing a service or tangible product, and if you have a contract, the other party has already agreed to your terms.
When you’re ready to off load your invoicing, contact us here at Quant Solutions and we’ll simplify your accounting needs for you.