Small and microbusinesses too often get the short end of the stick when it comes to getting paid, because they are usually the easiest for big businesses to bully. So how can you ensure that you have a leg to stand on when it comes to chasing payment?

Understand how credit works

When you sell goods or services to a customer—whether a consumer or another business—via an invoice, you are effectively lending them the invoice amount for the length of the invoice. As with any credit system, you need to make sure that both parties understand the fact that they are entering into a credit relationship.

Establish your credit terms

Choose the length of your credit terms, for example a 30-day invoice, 7-day invoice or an ongoing statement system, such as a monthly account. Take into account your cash flow cycle and identify when you need to be paid, then build in time to allow contingency in case you need to chase.

The standard business credit term is 30 days, but the average time it takes to pay this is more than 50 days. You may want to choose a shorter credit term to ensure quicker payment.

Communicate your credit terms

Have the payment conversation before you commence work, and let your customer know your expectations. Follow this up in writing (email is generally fine) and get them to acknowledge in writing that they have understood and accepted your terms. This is the basis of a simple, legally binding contract.

You may also consider offering incentives to be paid faster or disincentives for late payment, such as charging interest. If you decide to charge interest, make sure this is stated clearly in your credit terms.

If you would like to make this process more formal, create a document stating your credit terms, and have them sign, date, and return it to you. Ensure that this document contains the business details of both parties as well as the parameters of the relationship (e.g. “for the supply of Z services”).

Include credit terms on your invoice

Any request for payment should contain the terms to which they agreed. Make sure this is clearly stated on each invoice; don’t use fine print. You may like to state the due date or payment term length in bold.

The person in accounts payable is unlikely to be the same as the client who orders goods or commissions services, so call and make sure that the accounts person knows the terms to which your direct client has agreed.

Make it easy to be paid

Include on your invoice all the details needed to pay you: your ABN, the amount, and the methods by which you accept money e.g. bank details, or your mailing address if you accept cheque.

Going through this process will ensure that you can provide evidence to your customer (or to a third party, if required) of your credit terms being understood and accepted by both parties, giving you a foundation of reference should you need to pursue payment.

About the author:

Colin Porter is the Founder and Managing Director of CreditorWatch, a credit reporting agency with over 40,000 clients across Australia. CreditorWatch provides credit reports, debtor monitoring and debt collections tools. For more information visit www.creditorwatch.com.au