How to Set-up Your Terms to Get PAID!
Likely the most important terms to set-up in your creative business, are the ones that get you paid (on time).
Ahhhh, that feeling of landing your first client. Nothing is sweeter than the joy of starting that project. You’re excited. You knock it out of the park. You deliver the final product…
And then it all comes crashing down when you realize you forgot to prepare the terms on how to get you paid.
So, how do we avoid this? As a business owner, the great news is you get to set the rules around how you get paid. You just need to figure out the appropriate way to articulate them. It’s not the best feeling to think of all the ways a project can go wrong with a client, but imagining these scenarios will help you come up with ways to avoid them in the first place.
The best way to avoid invoice payment term conflicts or surprises is to make them clear right up front. When signing on a new client, be sure the terms are clear in your agreement. Not only will that keep both of you aligned, but it will also give you a legal leg to stand on should things go off track.
Here are a few general payment terms to get you started:
Payment Schedule
It should be very clear to your clients exactly when they will need to pay you before the project even begins. Do you want to invoice at the beginning of the month or the end? How many instalments do you want the total cost to be spread over? You may want to consider your cash flow and then set the inflow payment terms around when you need to prepare for your outflow.
The last thing anyone wants is for income to come pouring in on the same day that bills are getting paid. This not only creates anxiety about not having sufficient funds. It can also get super confusing. If possible, set your invoice payment terms so they stagger the time period when your bills are due.
PRO TIP: Personally, I don’t set-up payment milestones based on project deliverables, but rather by dates. This way my income doesn’t get delayed if the client happens to cause the project to be delayed.
Payment Platform
Another thing to communicate in your payment terms is how you accept payments from clients. Let them know if you use an invoicing platform, so they know to keep an eye out for it when it’s time to pay.
In my payment options I let my clients know which I prefer in order from most preferred to least preferred. I also let them know that if a cheque is being mailed, delays in our process could occur while we wait for the standard post to deliver.
Some invoicing platforms charge an additional cost for processing credit card payments, so be mindful of this when you are quoting costs. You may want to offer a slight discount to those that pay either by direct deposit or cheque to avoid those additional processing fees.
Late fees
A commonly overlooked element in payment terms is the notorious late fee. Late fees are put in place to protect your business, help avoid unpaid invoices, and ensure you get paid on time. BUT let’s face it, they don’t feel good and they run the risk of leaving a sour taste in everyones mouth. So it’s important that you manage this expectation clearly and early in your relationship.
Payment late fees can be anywhere from 1-5% interest for each day, week, or month that a payment is delayed. Whatever you decide for your late fee, just make sure that the fees are clearly communicated from the beginning so clients are aware and (hopefully) more motivated to pay on time.
Deposit/Instalments
Finally, decide whether or not you want to charge a deposit to secure the project. Deposits can be a good option when starting a new relationship as it adds assurance that they’re committed. They are also a good idea when you have larger billable projects. It can make paying the bill easier on your client if it’s broken out into smaller bites. If you are working with additional resources, you may need to have extra cashflow upfront to secure them.
An example of how deposits and instalments could work is:
25% deposit to book a project and hold it in your calendar.
50% instalment set at a particular date (say mid-way into the project), and 25% instalment around your estimated completion date. I personally do not hand over any final files to a client until all instalments have been paid.
BONUS:Consider Incentives
While it may not be right for all businesses, providing a discount should your client pay their invoice early can be a great motivator—and it fills your bank account sooner! Be careful with this idea though as it ultimately eats into your bottom line. You have to ask yourself: what’s more valuable? Full payment later or a slightly less than full payment now?
As you can see payment terms you set will depend on a number of things—and it might even be different between customers. At the very least, if you plan ahead and have a variety of terms you can lean on you’ll be better off when it comes to collecting the dollar bills.
xo Marlo
Co-Founder, Creative Roots Co.
