Set the right payment terms Once your pricing is clear and you know your deductions, you can then look at what credit terms you’re off ering. T ese will vary signifi cantly depending on your industry and your bargaining power, but, as a general rule, you want your customers to be paying you before you have to pay your suppliers. You also want to make sure your credit terms are
appropriate for each deal and not just applied regardless of the situation. For new customers, you should always be running credit
checks to make sure they have the fi nancial standing to pay you on credit. For long-term relationships, I recommend re-running those credit checks periodically or having alerts in place to know if one of your customers is struggling. Contractually, the priority is to accurately document
what the agreed terms are. I always recommend having payment terms be from receipt not date of invoice, to avoid you losing time to pay because someone forgot to actually send you the invoice. Also be careful whenever anyone sets their payment terms as ‘end of month’ as this can signifi - cantly extend the time before you get paid.
Finally, where you can, try to negotiate into your
contracts the ability to adjust your credit terms in the future where a customer defaults on payment or has some fi nancial diffi culty.
Actively manage your contracts One common phrase you’ll hear people say is that they hope their contracts ‘sit in a drawer’ once they’ve been signed. T is may be true in some cases but for commercial deals the contract should be a live reference point showing how the parties should be working together as things go along (if it’s not you need a better lawyer!). Having done the hard work to negotiate strong terms,
you need to be proactive in applying them to ensure you’re getting the most value out of your contract: ■ If you can apply price increases, make sure the dates for these rises are diarised and followed up.
■ If a customer is in fi nancial diffi culty, make sure you’re using your rights to adjust credit to protect yourself.
■ If you’ve off ered credit terms, make sure they are being stuck to and don’t be afraid to take action if they’re not (there’s plenty of options available to address bad payers).
Contracts may not seem like the obvious way to
improve your company’s fi nances, but the fact is most lines on your profi t and loss account will be underpinned by commercial agreements so getting them right can signifi cantly impact your prosperity in the long term. If you need help getting the most of your commercial
contracts, the commercial team at Howes Percival will be very happy to help.
Contact Miles Barnes at Howes Percival on 01604 258066, email
miles.barnes@
howespercival.com or visit
www.howespercival.com
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FINANCE
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