August 31, 2009

Payment Terms and Purchase Orders

Once you’ve checked a new client’s background and decided to work with them, it’s time to set payment terms. A client will always be willing to dictate these terms if you let them, but it’s important to have certain reasonable standards and keep control.

Protecting Yourself: You can protect yourself with either a contract or a purchase order (PO) should the worst happen, and the client doesn’t pay you or tries to change the payment terms. Business clients will frequently offer one of these options before a project starts without you having to ask, which is generally a good sign. In the case of a contract, it’s important to read it very carefully before signing. If upon inspection you find something fishy, ask to have it changed, and if they refuse, move on.

For instance, there are agencies that try to put a clause in their contract stating that payment will be issued when their client pays them. A clause stating something like that is completely unprofessional. Regardless of when the client pays them, you are providing a service to them, not their client; no reputable business waits for client payments to pay its employees or suppliers.

A purchase order is an invoice that is given before the project starts. It includes the buyer and seller’s full information, payment terms, method, and delivery date. Unlike a simple e-mail or phone call, a PO explicitly and legally states that the client intends to purchase a product or service.




If you want to make it easy for clients to provide a purchase order, consider having a template document ready. It would include all your information, name, address, etc., payment terms, due date, and fees. All they have to do is fill in the template with their contact information, PO number, etc. and send it back.

Payment Terms: Do you charge the client before, after or during the project? How many days after delivery does the client have to pay you? Standard payment terms in the U.S. are within 30 days, but when dealing with international clients it’s a good idea to do some research ahead of time.

When to charge is entirely up to you, but if the project is very large or will take some time, keep in mind certain considerations. For instance, if the project will take up all of your time for four months, it’s hardly fair to expect you to wait until the end for payment. Whether payment would be monthly, or based on the percentage of the project completed is an issue to work out with your client.

Paperwork isn’t pleasant, or always easy, but taking the time to do it correctly at the beginning of a project can save you from major headaches later.




5 comments:

  1. will a regular invoice template do?

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  2. Yes, you can modify a regular invoice template slightly and use it as a PO.

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  3. sometimes a client keeps stalling payment, or convienently changing their story about what's delaying the payment.
    what can i do?

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  4. After a certain point you can't accept excuses anymore, at that point it's time to inform them that you will take steps to collect. Stay tuned for my next post, which will provide additional details on how you can do that...

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  5. If you're having trouble collecting after a project here are a few tips.

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