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Worried about Late Payments?

Invoices are the documents that validates a legal transaction has taken place between the buyer & the seller. Invoice communicates the acceptable payment policy at the same time it also acts as a primary defense in case of any legal dispute.

Often you have come across ‘Payment terms and conditions’ mentioned in the invoice. It is one of the most critical elements in an invoice but, often least bothered. It is important that the invoice payment terms and conditions are properly drafted & is easily understandable.

Why do we need Payment Terms and Conditions on Invoices?

To bring clarity for both the party to the transaction it is important to have T&C in the invoice.

For e.g. whether a payment is acceptable in cards or only cash payment is expected it needs to be clearly mentioned as both the parties to the transaction might have a different expectation.

The maximum time period within which the payment is required to be made or in case of non-compliance any interest or any charges needs to be paid this should be clearly stated.

The Terms & Condition should be simple, polite, and it must not be ambiguous.

The 4 best practices to avoid delayed payment-

1) Advance Payment (Part/Total)

We have often come across a situation where we have been asked to make a payment in advance either in full or in part. This is a common practice in the service industry, in order to avoid non-payment or delayed payment. There can be other reasons like to avoid out-of-pocket expenses to complete the project.

But it is also prevalent in case of sales of goods

Remember when you brought your first vehicle or a flat, you might have made an advance booking by paying a part of the total price.

It is important that the contract or the Invoice must contain such terms of Advance payment.

 2) Instant Payment- COD or Card payment

In this case it is expected from the buyer that he will make an instant payment either in cash or via card as soon as the goods or service is received by him. In case the terms are not honored the deal gets cancelled.

It is important that you mention such terms in the Invoice itself as the client might not be aware of such conditions & can be easily annoyed if such a condition is not mentioned.

 3) Net 2/10, Net 1/15

This are an incentive schemes that is given to motivate the buyer to make an early payment. For e.g. a discount of 2% on the total due if the payment is made within 10 days of the date of purchase or 1% if payment is made within 15 days. The Customer is given a credit at the same time an option is given to avail the early payment incentive. If, the customer has excess cash in hand he/she may prefer to avail the benefit of early payment.

It is better if you clearly mention in simple sentence these terms of credit. For. E.g. ‘Pay within 10 days & Save 2%’.

 4) Interest on Late Payment/Penalties

If there is any interest that you are supposed to charge on the late payments then it should be clearly stated in the face of the Bill in order to avoid confusion & tussle among the parties, which may often lead to bitter Business relations. In order to have a good relationship with your customer, it is important that you inform him/her in advance about the interest & penalties that he/she is liable to pay in case of overdue payments and their subsequent consequences.

This will also help you in reminding the customer of the payment due & the consequences in case of failure to pay at time & as a result he/she may pay timely. Also, if the payment is delayed the interest or penalty you receive will compensate for the loss that you need to bear due to delayed payment.

You might have different terms & conditions for different Customer or client, you may be willing to offer a client say Mr. A 2% discount on payment made within 10 days, whereas to Mr. B 3% in case the payment is made within 5 days.

It is recommended that you use a good Accounting or Billing software which takes care of this varying requirement in Invoices. BracketLine BracketBooks is one of the software which can help you in creating Invoice with varying Terms & Condition at an ease.

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