As a self-employed person without staff (sole trader), it is important to have a good grasp of the financial side of your business, as smaller entrepreneurs usually have a smaller financial buffer. This makes you more vulnerable to financial problems if payments are delayed. One of the aspects you will deal with as a sole trader is the payment term. But what is the payment term? What is a normal payment term between entrepreneurs? What are the legal regulations and how long can you wait to pay an invoice?
What is the average payment term for sole traders?
The payment term refers to the time a client has to pay an invoice. This means that when you complete an assignment as a sole trader, you should be paid within a certain period. The term can vary, but according to ZZP-Nederland, it is on average between 14 and 30 days.
Definition of payment term
The payment term is a period within which a client is obliged to pay an invoice. This can be stipulated in a contract or based on legal provisions. It depends on the agreements made between the sole trader and the client. If the payment term is not established, the legal rules regarding payment terms apply.
Legal regulations regarding payment terms
Since 16 March 2013, it has been legally established for companies to pay invoices within a period of 30 days to each other if no payment term is agreed. It is possible to agree on a different term, but it must not exceed 60 days. This can only be deviated from if both parties can demonstrate that a longer term is not disadvantageous to anyone.
Regarding invoices for government contracts, the government must pay within 30 days and this can hardly be deviated from. This is possible if there are unforeseen circumstances beyond the control of both parties, such as extreme weather conditions or if both parties agree.
It may happen that a company does not pay. If that happens, the person sending the invoice may request a collection fee without sending a reminder, where the basic amount is €40. It is also allowed to charge statutory interest after a delay of 30 days in transactions with consumers. Statutory interest is the interest that a creditor can legally demand if a company or consumer has a payment arrear.
Factors influencing the payment term
There are various causes that can influence the payment term between sole traders and clients. Such as contracts, the type of work, and special circumstances, which we explain further in the article. It is important for a sole trader to take these causes into account when making agreements.
The role of contracts and agreements
A contract or agreement can contribute to a quick payment. It is important to clearly establish the payment agreements and include all information, such as the payment term, payment method, and possible penalties for late payment. There are various websites and online tools available to draft such contracts. Additionally, you can also contact industry organisations such as ZZP-Nederland.
Are payment terms dependent on the type of work?
The type of work can also influence the payment term. Some assignments, such as construction projects or large software programs, require more time and effort, resulting in a longer payment term. It is important to make clear agreements about the payment term in advance and to record these in an agreement. This can prevent misunderstandings. You can do this by clearly describing the payment terms in the work agreement. Ensure that both parties sign this document to approve the agreements and provide legal certainty.
The importance of a good payment term
Payment terms are important for the financial health of a sole trader. It affects the liquidity of your business. Liquidity refers to the level at which a company can meet its short-term obligations with its available cash. With good liquidity, you have money in the bank and fewer financial worries as a sole trader, because you can always pay your bills.
A good payment term can also affect the professional relationship with clients. Always paying bills on time is a predictable and pleasant way of working. Additionally, a predictable payment term can make planning and managing future projects and financial obligations easier, as it is easier to make predictions about how much money is in the bank.
Benefits of timely payments
When clients pay on time, it leads to a healthy cash flow. Cash flow describes the inflow and outflow of money within a company. In the case of a ‘healthy cash flow’, more money flows in. Additionally, paying bills on time contributes to a good reputation and can ensure a good business relationship with clients and suppliers.
Risks of late payments
Late payments by clients can lead to financial problems for sole traders. For example, if you are dependent on a few clients. If they pay late, the income disappears. Sole traders are extra sensitive to this because they have fewer financial reserves than larger companies. This makes them more vulnerable if money does not come in on time.
Sometimes you still have to deal with unpaid invoices. If reminders and warnings do not work, you can consider engaging a collection agency.
Tips for managing payment terms
The rule of thumb in the Netherlands is: a good debtor policy starts with yourself. As a sole trader, you can take various measures to manage payment terms. Here are some tips that can help you get paid on time:
Creating clear invoices
Ensure that your invoices are clear. Include the payment term, payment details, and possible penalty for late payment.
There are various debtor management software packages available that can help you manage your payment terms. With this software, you can easily send reminders and track payments. This saves time and helps you maintain an overview. An example of useful software is Payt.
Frequently asked questions about payment terms for sole traders
How can I shorten my payment term?
As a sole trader, you can be proactive and discuss the payment term with your clients. Explain why it is important for you to be paid on time and discuss the possibility of shortening the term if the payment term is too long for you.
How do I state the payment term on my invoice?
It is advisable to state a due date on the invoice. The due date is the date by which the invoice must be paid at the latest. On that day, the amount due must be in the account. The due date is calculated by adding the payment term to the invoice date. Or actually: to the moment of receipt of the invoice. When sent by email, the receipt date is usually considered the same as the invoice date. Do you have other questions about creating an invoice? There are various resources available online with examples.