What is the payment etiquette for B2Bs?

zig

Hi,

I am involved in a small business, we are going about a year, we provide custom software development ,web apps and native apps. All our clients are businesses.

I have found getting paid on time to be very frustrating. The clients vary majorly, some are fantastic and pay immediately, some just seem not to bother for a long long time after quite a bit of hounding, and one or two havent at all.

We've started charging 50% up front which works nicely to at least guarantee that much.

Im wondering whats normal and whats unreasonable for SMEs?

We generally put a month later due date on the invoice. After that we ask them once. Often there is a promise that it has gone to the "accountant", we then have sometimes have to hound even more, and sometimes its 2/3 months if not more before we finally see money.

At first I figured maybe this is normal and expected amongst all small businesses but Im doubting that one to be honest. I really dont see why people cant pay for a service as soon as they are invoiced.

Its not like there are disputes on the work we've done. And this problem usually only happens with smaller support or training jobs, not the bigger projects.

I've searched in this forum but alot of it seems to be business to end consumer issues which are a little different, and some of the conversations are dated back to 2008 which means theyre in a slightly different context.

I guess my question is, is it normal to be waiting that long??

jimmii

Its pretty normal alright. Most places seem to put off paying as long as possible I just got paid for an invoice from October I couldn't believe it when I saw they had actually paid!

BoB_BoT

Get them to sign an agreement / contract beforehand agreeing payment terms. These people do not have credit agreements with you, unless you have previously agreed to provide one. You should be paid the remainder on delivery of the product. Look into the legal sides of it, but you could probably start putting a monthly administrative charge onto overdue bills (put it in your T&C's of sale).

You've already paid your bills on time (wages, rent etc..), waiting for them to pay you is costing you money. If you took out a loan, you'd be charged interest, so why do the same to them, they owe money, there has to be a penalty for late payment.

smash

Given that you're in software and app development I'd suggest staged payments such as:

25% up front.
25% upon sign off of concept.
25% upon sign off of beta version.
25% upon hand over/go live.

I know of other software companies who operate like this and it seems to work well. It keeps the project moving, and the client can see exactly what they're paying for.

Mrs OBumble

I've been told that it's totally normal in this country, and that many SMEs are built upon the backs of their suppliers. And that it has ever been thus, even before the boom.

Don't know how true it is, but it was an experienced SME-sector accountant who told me, and it's rung true with a number of posts like this.

One tip; pick your clients carefully. If someone has been a slow payer in the past, don't accept more work from them - or at least change the payment terms for them (eg all but the final 10% comes in the earlier stage payments). Ditto if a client is similar to one that's been a slow payer in the past.

duploelabs

I produce a service that I deliver daily to both very small vendors to huge multinationals, and it's usually the latter that give me the most grief when it comes to getting paid, some of them have imposed a 8 week credit term. Wasn't given the option, just told, if you want our business then these are our terms

pedroeibar1

You do not give an indication of the amounts involved. The terms in the post by Smash above are aspirational but a good indicator, although when you are trying to get work it is not always easy to “demand” terms. Your customers have your product, they obtain immediate benefit from it, unlike, for e.g. a manufacturer who has to incorporate the product into another and then sell it on, with a credit term. Your credit periods should be the shortest possible and on the terms outlined by Smash I’d be chasing after 7 days.

You should establish a relationship with your counterpart, keep in regular contact with him/her and always ensure that your invoices and statements are 100% accurate. Do not be afraid to call to chase payment, the longer a debt is overdue the lower the chances of collection success.

Your business Terms & Conditions need to be agreed in advance, detailed both in the contract you sign and also on the back of your invoices, and they should be pointed out at inception. Make sure they are realistic. No point in expecting some of the ‘biggies’ to pay in 7 days, they won’t, as they are set up for monthly payments.

Each contract with a customer is a question of balance, how much will you make, how much will it cost you to collect, what it would do to you if unpaid and how much could you be making without the collection hassle.
Also, be careful of retention amounts, they tend to be regarded as a discount by some.

Around 1 in 5 business that go out of business do so as a result of late payment, making it a major cause of business failure, drain on cash and management resources, preventer of investment, recruitment, etc., etc.

You should get some advice from a credit control professional who is familiar with your sector and its credit norms.

mneylon

A few things ..

You are not a bank, so you shouldn't feel obliged to give your clients extensive credit terms.

As you're providing software etc., X% in advance etc., might work. Or staged payments.

Most companies will expect 30 days credit - you aren't obliged to provide it.

Just make it clear what the terms are ie. don't just assume that they're understood.