Net 30 Payment Terms To Keep In Mind When Closing The Deal
As a novice freelancer, you may believe that you would be paid as soon as your work is finished. However, if that were true, people would be flocking out of their jobs to leap-in into this industry. Pause. I said, if that were true, because it’s NOT.
When you work with a well established company or any other big client, they might add some terms in the contract that you might not be comfortable with. Hence, it becomes very crucial to read and set the terms of sale with your client, beforehand.
Every freelancer should be familiar with some basic words and definitions. Knowing the fundamental definitions of popular invoice payment phrases might cause misunderstanding between you and your client, set a surreal expectation, and keep you waiting longer than you need to get paid.
Net payment terms are a financial approach used by established companies (typically those large enough to employ an accounting team or department). The number of days or the term period that a client has to pay their debts to their creditor is referred to as net payment terms.
It doesn’t matter if you’re just starting out or have been in business for a long time. We don’t have the luxury of waiting a month for payment as a freelancer because we are service providers who must be paid once the assignment is completed.
So, let’s delve a bit more into the Net-30 to see what key provisions you should emphasise on while drawing up your terms of sales. In addition to that do not forget to incorporate these terms in your invoice generator as a set standard template of invoices.
Net 30: An In-Depth Look
Net 30 is a popular invoicing payment term in the business world, with the 30 referring to the number of days your client has to settle the outstanding invoice.
Net 30 is a word that refers to a short-term credit that a seller offers to a customer. The project or service has already been finished, but the customer has yet to pay.
Instead of requesting for payment right after (or before) completion, the client has 30 days to pay. The 30-day period includes transit time, so if something takes a week to ship, the consumer still has 23 days to pay.
Remember that unless your conditions are net zero, you are essentially giving your customers free credit. Something to consider: can banks allow you to borrow money for 60 or 90 days without paying interest?
Not everyone has the financial means to say no to money. However, you don’t want people to assume you’re so small that you can’t maintain your business open for long periods of time without payment.
So, Decide when your Net 30 begins!
Incorporate Net 30 in terms only after checking your cash flows and whether you can sustain and efficiently serve your client or not in credit for 3o days. Also, Net-30 could refer to 30 days after the sale, 30 days after the products are received, 30 days after the invoice is sent, or 30 days after the invoice is received.
In most cases, Net 30 begins on the date the invoice is received. So, deciding when your Net-30 begins at the time of drawing up the contract becomes very important.
Note: The term “Net 30” refers to calendar days (as opposed to business days) and includes weekends and holidays.
Terms of Sale
How do you ensure that your customer is aware of your payment requirements? Your terms of sale (TOS), which should appear on estimates, invoices, your website, and other customer-facing interactions, can help you do this.
Again, invoice generator software can supply you with standard TOS, but it’s ideal to modify yours and have them reviewed by an attorney before using them. The following should be included in your Terms of Service:
- Your project’s scope
- Your responsibilities and deadlines
- Who is liable for the payment of duty and taxes?
- Any promises you’re making about when and how clients should pay
- What consequences will you face if you or your client fail to meet your obligations?
Following are some of the terms of sale and other provisions to keep in mind while drawing up your Net-30 Contract of payment:
1. Ask Your Client About Their Standard Payment Policy
As a freelancer, it is your job to inquire about net payment arrangements with potential clients. If you don’t ask, they usually won’t tell you. This is something you’ll either notice in their contract conditions or discover when you have to wait far longer than intended for payment.
As you can expect, this may wreak havoc on your cash flow and leave you in a tight financial spot. This can rapidly turn into animosity, if not outright hostility, between you and your client.
Before accepting the project, make sure you understand any net payment terms. If the client asks you to sign a contract, read it carefully.
2. Net Payment Terms Are Negotiable
While most clients will tell you that they have no control over their company’s payment policy, each aspect of a business contract can be negotiated. This is where treating yourself as if you were a company (because you are!) pays off big time.
If the client requests Net-30 payment terms and you are unable to comply, be forthright with them. Inquire if they can accept Net-15 payment terms or, at the very least, accelerate the invoice to their AP (accounts payable) department.
Remember that Net-30 just says that the client has up to 30 days to pay your invoice, not that it will be paid in 30 days.
3. Ask for Upfront Payment in Exchange for a Discount
As a freelancer, this is one of my favourite sales strategies. If the client is ready to pay in full up ahead, I provide a 10% discount on the total project charge. Let’s imagine I give a client a proposal for Rs. 50,000 for a job. It’s 10% reduction equals Rs. 5,000 in savings. As a result, the client has the option of paying Rs. 45,000 in advance.
It’s a one-of-a-kind deal that saves them money while fully removing my risk. It’s a terrific offer for the client if you’ve done a good job of creating trust up to this point.
Offering a discount like this also allows me to gain a better understanding of the client’s mindset. It makes no difference whether they choose that option or not; everyone has an emotional reaction to it. Some customers’ ears perk up when they hear the words “saving money.”
They will compare your possibilities more than they will compare you to another freelancer.
4. Down Payment
Always get a down payment on freelance work, no matter what. The industry standard appears to be 50% of the overall project charge for most freelancers.
Some clients with net payment terms may claim that they aren’t “allowed” to make a down payment and that their net payment terms apply to all invoices. However, you should never begin working without first making a deposit.
In this instance, I’d notify the client that we’ll have to push back the start date unless they can pay for it sooner. Starting work without a deposit is not an option for my company.
If the project’s start date is far enough away, I’ll merely send the invoice right away, and the client will be compelled to pay it before the job begins.
5. Cash Flow Management
As a freelancer, the more successful you get, the more financially secure you should become. Waiting 30 days for an invoice to be paid becomes less of an issue when you’re financially secure. You should have more than enough cash in the bank to last a month comfortably.
As a freelancer, it’s critical to manage your cash flow in such a way that you have a financial “runway” in case of unforeseen circumstances. This could be due to net payment conditions or a void in your project schedule.
Simply said, save as much money as you can for unforeseen circumstances. You won’t experience the normal “rollercoaster” and “feast and famine” cycles that come with freelancing.
6. Offer Rebate – 3% 10 Net-30 Payment Terms
Businesses can incentivize speedier payments by offering incentives. When an invoice is paid in full by a particular date before the ultimate due date, a discount is often offered as a reward for speedier payments.
In accounting terms it is called rebate. If you’re not an accounting buff, you may use invoice generators like Refrens that allow you to incorporate customised policies like rebate in your set template of invoices.
Standard phrases like “3% 10 Net 30” or “3/10 Net 30” come into play here. The consumer is required to pay their invoice within a 30-day term in both circumstances. The “3” denotes a 3% discount, while the “10” denotes the time limit during which the consumer must pay to earn the discount.
The client must pay within 30 days in these cases, but if he or she pays within 10 days, he or she will receive a 3% discount. This can be a great motivation for clients to meet their dues.
Your clients will, for the most part, have no real motivation to pay you on time if you don’t punish them. That implies you’ll have to add a late fee to your bills if they’re paid after the due date.
If your client protests about any kind of late payment costs, it’s usually a warning that a problem is on the way. Even if a customer fails to make a payment, charging a late fee without prior agreement is not professional.
If you use invoice generator software, the arithmetic will be handled for you, making the process of adding interest much easier.
It’s also worth noting that just because you have a late-payment penalty doesn’t imply you have to apply it. In the interest of customer service, you have the option to waive your fees at any time.
Depending on the transaction methods you use, these invoice payment terms can be critical for your organisation. Some are optional, depending on your industry, while others, such as Net 30, are required.
These have their own set of benefits, but they, like the rest of these invoice payment terms, also have their own set of disadvantages. The more net days you provide for payment, the more likely a consumer is to use your services.
Naturally, the longer your payment is delayed, the worse it is for your cash flow, and if you are a small business owner or freelancer, you may struggle to stay afloat.
The most crucial factor to consider when deciding which payment terms are suitable for your invoicing is to consider your working structure, income streams, and cash flow.
Followed by standardising those terms across all the invoices in your invoice generator to save you the hassle of rewriting them with every single invoice.
Choosing the right invoice payment terms will be reflected as an improvement in your sales, cash flow, and overall business.