Setting and agreeing to payment terms

When your client is asking you to agree to their payment terms

The most important thing to do first, which you have probably heard many times, is to read and understand the terms offered before accepting. If there is anything you don’t understand or aren’t comfortable with now is the time to work it out. In some cases, payment terms may be negotiable.

If you are unable to negotiate payment terms that you are comfortable with, you need to weigh up whether you want to enter into the business relationship or not. When reviewing the other party’s payment terms, you may want to pay particular attention to their payment time frames. Protracted time frames, or the ability to extend payment time frames, may mean that you are effectively providing the other party with an interest free loan. While you wait for payment, you can’t use those funds to service your own debt or for any other purpose.

Prior to signing you may wish to seek legal and/or business advice:

When you control the payment terms

Remember that the big upside here is that you are setting the terms you want. But of course, they will have to be acceptable to potential clients, and you have to do your homework to make sure your payment terms protect you if they accept the deal.

When you have control, you can draft some strong terms which can aim to encourage the other party to pay on time. Payment terms should be balanced and promote an effective business relationship between parties. It’s also worth noting that the unfair contract terms requirements in standard form contracts are now in force.

For further advice on setting payment terms go to Business.gov.au