Payment terms are an important factor in the success of a commercial relationship in the business world, particularly in B2B transactions. Many businesses find it difficult to implement effective payment rules that are tailored to their specific needs and aid in the prevention of non-payment.
In this article, we will look at the key elements that must be included in your payment terms in order for them to be effective.
Setting payment terms
First and foremost, you must specify the standard payment terms you wish to offer your customers. These can differ depending on the nature of your products or services and the level of trust you have in your business partners. Depending on your cash flow, financial needs, and overall strategy, you can choose between short payment terms (10, 15 or 30 days) and longer ones (45 days end of month or 60 days invoice date).
Cash or credit?
For some customers, you might consider accepting cash payment upon receipt of the order, especially if you have negotiated favorable purchasing terms with your suppliers in order to reduce your working capital requirements. This can hasten the financial cycle and lower the risk of nonpayment. Offering credit to your customers, on the other hand, can strengthen their bond with you and encourage them to remain loyal in the long run. Payment terms are sometimes required before establishing a business relationship.
The billing establishment
Your billing terms must also be specified in your payment terms. To do so, several factors must be determined:
The invoice's issuance date
It is critical to clearly define the invoice's issuance date, as this will serve as the starting point for calculating payment terms. You can fix it at the time of the sale's conclusion, as well as during the shipment or receipt of the goods.
The invoice reference
It is essential to assign a unique reference to each invoice in order to facilitate billing tracking and avoid confusion between transactions. This must be mentioned on all transaction-related documents (purchase orders, delivery notes, etc.).
Billed products or services details
Finally, it is critical to precisely describe the products or services that you bill, including their description, quantity, single price, and total excluding taxes. Don't forget to include any possible discounts, shipping costs, and other transaction-specific terms.
Payment terms and conditions
You must also specify the payment methods that will be accepted in your general terms and conditions. This could apply to:
- Bank transfer: A bank transfer is a simple, efficient, and secure method of business-to-business transaction settlement. You can include the necessary banking information as well as the account number where the money should be credited in your payment terms.
- SEPA direct debit: particularly useful for recurring invoices, the SEPA mandate allows for automatic prepayment of the debitor's bank account if it is sufficiently provisioned. As a result, it is not a payment guarantee.
- Company cheques: despite being completely obsolete, cheques are still a popular method of payment in France. It allows businesses to pay for purchases with a check issued by their bank. You can specify whether you accept this type of payment in your payment terms, as well as the address to which it should be sent.
- Letter of credit: The letter of credit (or /LC) is a financial instrument often used in international trade. It represents a guarantee for the seller in the event of non-payment by the customer, and can be negotiated with the bank. It is important to state in your terms of payment whether you accept this method of payment and under what conditions (deadlines, exchange rates, etc.).
- Other payment methods: view a list of the most commonly used payment methods between businesses.
Litigation and debt collection management
Finally, it is critical to establish clear and effective procedures for dealing with potential litigations and unpaid bills. You must therefore specify in your payment terms the remedies available in the event of breach of contract, such as:
Les pénalités de retard
You can impose late payment penalties to encourage your customers to pay their bills on time. They are typically calculated as a percentage of the owed amount, with a minimum rate set by the applicable legislation.
The property reservation clause
The property reservation clause allows the seller to retain ownership of the sold goods until the buyer pays in full. She provides important protection in the event of your client's noncompliance and should be explicitly mentioned in your payment terms. However, it is not easy to implement, especially if the products have been transformed or repurposed.
The collection procedures
If, despite this, a client does not pay his or her bill within the specified time frame, it is necessary to implement appropriate collection procedures. Depending on the situation and the amount at stake, you can choose an amicable recovery (recall, restitution) or a legal recovery (injunction to pay, legal action).
In the end, in order to successfully complete your B2B transactions and reduce the risk of nonpayment, it is critical to establish solid payment terms that are tailored to your specific needs. By taking into account all of the elements discussed in this article, you will be taking every precaution to ensure the smooth operation of your business and the satisfaction of your customers.
Why not use a credit management and debt collection software to help you manage your debts more effectively, be more efficient, and digitalize your customer relationships? You can introduce a new relevant process into your company using specialized software. With such a tool, you will be able to analyze your customers' payment behavior and, as a result, have a better client risk management, as well as create automatic repayments using your own recovery scenarios!