Payment terms are a set of agreements between you and your customer regarding the settlement of costs for your product or service. It is therefore important that these terms are both comprehensive and understandable for both parties. Payt is happy to provide you with some useful tips for drafting clear payment terms.
Why are payment terms important?
Payment terms are important because they clearly outline how and when invoices should be paid. With this goal in mind, we see several reasons why payment terms are important:
- Protection: payment terms offer protection for your business (DAS, 2023). By making agreements about late payments, for example, you limit the risks and liabilities associated with entrepreneurship. You can, for instance, take legal action or start a collection process if the terms are not met. This makes payment terms important for your organization.
- Clarity: payment terms provide clarity about the payment period and the collection costs and interest that may be charged in case of late payment (MKB servicedesk, 2023). In your payment terms, you record these agreements so that the customer is aware of these consequences.
- Preventing disputes: by drafting clear payment terms, you prevent misunderstandings with customers about the payment of invoices (MKB servicedesk, 2023).
- Legal obligation: certain rules apply to companies and government agencies regarding payment terms. An example of this comes from the Ondernemersplein (2023a). If you do not include a standard payment term in your payment terms, a statutory standard term of 30 days applies. If you want to deviate from this, it must be recorded in the general terms and conditions.
Tip 1: Before drafting the payment terms
From the points mentioned above, it is clear that clear payment terms help you as a business, but also that they clarify your expectations to the customer.
Legal considerations when drafting payment terms
Dutch legislation imposes certain requirements on payment terms. Before you can draft your payment terms, you need to know which rules apply to you.
An example is the general terms and conditions. These are the general rules that apply when a customer buys a product or uses a service. The general terms and conditions must be shared with the customer before they pay. If this does not happen, the customer may ignore your general terms and conditions (Juridisch Loket, 2023).
Therefore, we recommend seeking legal advice when drafting your payment terms. A legal advisor can help you understand the rules and laws that apply to your business. They also ensure that you meet the legal requirements. For example, if you want to maintain a payment term of more than 60 days, you and your customer must be able to demonstrate that this is not disadvantageous for both parties (AAG, 2023).
Check your customer’s payment behavior
Depending on your product or service, it may be important to determine the payment behavior and/or financial status of your customer or target group in advance. Credit insurers and credit information agencies specialize in this and can assist you (Het Ondernemersplein, 2023b). By getting an idea of the payment behavior of your (potential) customers, you have a better idea of where you might expect problems. You can then prevent these by addressing them in your payment terms.
How will you communicate the terms?
Your payment terms must be available in a timely manner: before your customer purchases a product or service from you, they must be able to review your terms. Additionally, your terms must be easy to find. If you use invoices, for example, it is useful to mention the payment methods you accept here.
Tip 2: The key elements of helpful payment terms
Helpful payment terms are easy to understand and read. For both your business and the customer, it is advisable to make agreements about the amount, payment methods, payment terms, and the consequences of late payments.
The amount
As a company, you have determined the amount of money (or the consideration) you want to receive for your product or service. Record this in the payment terms. Also mention the currency and the VAT percentage that will be charged.
Payment methods you accept
You can assist customers by accepting various payment methods. This also provides a better experience for the customer. In your payment terms, you can include which payment systems and methods you accept. This prevents potential problems that could lead to unpaid invoices.
Your payment terms
The payment terms are an important part of the payment terms for you. Here you can specify from which moment the payment must be completed. These terms must be realistic and reasonable (Ondernemersplein, 2023a). If you do not specify a term, a statutory payment term of 30 days applies (Ondernemersplein, 2023b).
You can also choose to have the payment take place before you deliver your product or service. Or you can agree with the customer that the amount will be divided into installments. These installments are then called ‘partial amounts’. Clearly explain in your payment terms how these options work.
Consequences of late payments
It may happen that the customer does not pay (on time). In your payment terms, you can include the consequences or late payment fees to prevent this as much as possible. These consequences can cover your administrative costs. For example, you can first send a reminder if your customer does not pay. You may charge costs for this immediately. If you engage a collection agency or other institution in these cases, you also communicate this in your payment terms.
Tip 3: Communicating your payment terms
Clear payment terms help both you as an organization and your customer. To make your payment terms truly helpful, you need to consider where and when you share this information with the customer. We provide some considerations to help you communicate your payment terms clearly and helpfully.
Make your terms clear and accessible
Ensure that your payment terms are easy to find and accessible to your customers. Many websites, for example, have the general terms and conditions at the bottom of the website. Information about payments, such as your account number, should be mentioned on the invoice.
Additionally, the terms should be written in understandable language. Short sentences are easier to understand. Avoid jargon that may be difficult for customers to understand, as this can lead to misunderstandings. To avoid confusion, it helps to keep your wording as consistent as possible.
Where do you communicate the payment terms?
The payment terms do not necessarily have to be provided in one document. By breaking down the payment terms, you have control over which information the customer sees within the process. As mentioned earlier, you can work with quotes, general terms and conditions, a contract, and/or an invoice.
You can decide which methods you want to use, as long as your payment terms remain clear and accessible. Refer within these documents to other documents so that you do not have to mention the same points multiple times. This is error-prone and can cause confusion.
Example: general terms and conditions
Some terms apply to every customer, for example. You do not have to draft these every time. Payment terms that apply to everyone can be included in the general terms and conditions. Draft this with a legal advisor to ensure they comply with the legislation you must adhere to. Also, refer to them in the contract with the customer. This can be brief: as long as it is clear to the customer where they can find the general terms and conditions.
Tip 4: Reviewing and updating your payment terms
After your payment terms have been drafted, it is important to consider when and why you want to review your payment terms. Both your business and market conditions are constantly changing.
Payment terms should be reviewed, for example, when significant changes occur in your business activities. Think of offering new products and/or services, changes in your pricing policy, or (new) legislation that affects your payment terms.
Communicate your changes to your customers
When you update your payment terms, ensure that all changes that affect the customer are tracked. Communicate these to your customers. If you make changes to a document, also check the other documents where information about your payment terms is included. It may also be wise to engage a legal advisor to ensure that your updated payment terms meet the legal requirements.
By taking the time to draft helpful and comprehensive payment terms and clearly communicating them to your customers, you can lay a foundation for successful business transactions. It is important to regularly review and update your payment terms to ensure they meet your business needs and comply with relevant laws and regulations.
Sources
- DAS. (2023, September 29). Delivery terms: everything you need to know. Retrieved on October 23, 2023, from https://www.das.nl/ondernemer/overeenkomsten-en-contracten/leveringsvoorwaarden
- MKB Servicedesk. (2023). How do I draft the right payment terms? Retrieved on October 23, 2023, from https://www.mkbservicedesk.nl/juridisch/algemene-voorwaarden/hoe-stel-ik-de-juiste-betalingsvoorwaarden-op
- Het Ondernemersplein. (2023a). Payment terms, collection costs, and statutory interest. Retrieved on October 23, 2023, from https://ondernemersplein.kvk.nl/betalingstermijn-incassokosten-en-wettelijke-rente
- Het Ondernemersplein. (2023b). Credit insurance. Retrieved on October 23, 2023, from https://ondernemersplein.kvk.nl/kredietverzekering
- Juridisch Loket. (2023, July 20). General terms and conditions. Retrieved on October 30, 2023, from https://www.juridischloket.nl/aankopen-en-garantie/aankopen/algemene-voorwaarden
- AAG. (2023, July 20). Statutory payment term. Retrieved on October 30, 2023, from https://www.arag.nl/zakelijk/klant-en-leveranciers/wettelijke-betalingstermijn