How can my contracts ensure prompt payment from my customers?
The content of this article is not intended to, and does not, constitute legal advice, and should not be used, referred to or relied upon as such.
Few things are more important to your business than receiving prompt and full payment after delivering your products and services to customers. A customer’s failure to pay fully, or on time, can have a wide-range of negative consequences for your business’ cash-flow, supplier relationships and employees. You’ve kept your side of the bargain, so how can your contracts contribute to ensuring your customers pay-up promptly?
Clear Commercials and Payment Terms
Whilst it may seem obvious, it’s vital that pricing, product, service and payment term details are set out as clearly as possible in your contracts. A customer should be left in no doubt as to what will be provided and when, how much it will cost, when the associated invoice will be raised and when payment is due. By making these details as clear as possible, you’ll provide your customer with as few excuses as possible for late or non-payment.
Incentives and Penalties
In return for greater certainty that your invoice will be paid promptly, you may wish to insert a small early-payment discount into your contract. By offering your customer a modest but tangible financial benefit in this way, you can incentivise prompt payment whilst securing a cash-flow benefit from an earlier receipt of funds.
By contrast, you may also wish to deter late or non-payment by reserving the right to apply interest to overdue sums. The uncomfortable knowledge that an unpaid balance will not simply go away if ignored, and will instead compound gradually as more time passes, can push a customer to settle what they owe without any further delay.
A Clear Mechanism for Resolving Disputes
From time to time, questions, confusion and disagreements can arise around the value of an invoice or sum owed. Innocent administrative errors, missed communications and the need to keep moving forwards at pace can each contribute to misunderstandings and miscalculation. By ensuring your contract contains relevant contact details and a simple procedure for the notification and resolution of payment related disputes, you can create a path of least resistance towards receipt of payment. Crucially, your contract should make it clear that, in the event that only part of a sum owed is in dispute, this does not, and must not, excuse your customer from its obligation to make payment for the undisputed portion of the balance, in accordance with the original payment terms.
Reserve a Right to Suspend or Terminate
Amongst the strongest tools your contract can offer to ensure prompt payment is the reservation of a right to suspend provision of products and services, or to terminate, in the event of late or non-payment. Whilst very careful consideration must be given prior to the potential exercise of either right, their presence in your contract signifies that late or non-payment can result in significant, and potentially grave, consequences for your customer’s business.
To Conclude
Whilst recourse to contractual provisions in the event of late or non-payment is never desirable, it can from time to time be vitally important.
Contracts can, and should, provide your business with a range of tools to promote and facilitate prompt payment by customers; if you require assistance making use of these tools, or would like to find out more, please get in touch via hello@ne2-data.com
This article first appeared on NE2 Insights at:
https://www.ne2-data.com/insights.
Joe Pearson
NE2 Data
