Ten tips for Negotiating Fair Payment Terms in your Contract
At the OSBC we see more small firms with payment disputes because of unfair payment terms and lack of written contracts than we do about invoices that are overdue. It pays to get the contract right and in writing before you start work.
There are at least 2 parties involved in any contact for work. When it comes to you being contracted to do work for another firm you are the supplier and the other party is your customer. The contract spells out what the customer expects from you and what you agree to do for the customer, possibly with dates for milestones and details for delivery. However what people sometimes forget is that you need to agree the payment terms too. Those should also be in the contract, in everything in writing so that no one can argue about what was agreed.
Customers often assume that you will simply accept their demands and do the work for them under their terms and conditions. You have the right to say no. You can set your own terms or negotiate until you reach an agreement. It’s highly likely that your customer has customers they need to keep happy so you are vital to your customer’s business. That give you power to negotiate. Don’t roll over, make sure you know how much you will get paid, what you need to do to get paid, and when the money will reach your bank account. Without that certainty you could have difficulty managing your cashflow.
Get the Ts and Cs right before you start work:
- Don’t get too excited by the offer of work, no matter how life changing it appears. It will only help your business if you get a fair price for the work you do, and you are paid quickly. If you don’t get paid fairly, you’ve got a hobby not a business.
- Work out when you can do the work by, whether you’ll have to buy materials before you can start, and whether you’ll need to take on extra people.
- Work out how much cash you have in the business and whether you can make that last, and cover your bills and give yourself an income, or whether you will have to borrow more, until you get paid.
- Once you have all the figures decide whether you need to ask for part of the payment up front to cover the cost of the materials or labour, or whether you’re prepared to wait until you deliver the work to get paid everything you’re owed. If you don’t ask you won’t get and firms are often willing to pay for material/labour before you start.
- It’s likely that your customer will offer to pay you after you deliver the work. Are you prepared to accept that? If so, how long are you prepared to wait/can you afford to wait after you deliver the work until you get paid? Some customers will want to hold onto their money for as long as possible to invest in other parts of their business, or their processes may take a long time to navigate. They may offer to pay you in 30/60/90, even 120 days after you deliver the work. 30 is fair. 120 days isn’t. What’s your red line?
- Agree to accept the work only if you will get paid when you need to be paid. Set your own demands: I will do the work/deliver the work by xxxx (date) and I will expect to be paid by yyyy (date).
- Your customer may refuse your terms and offer to pay you later than you’d like. You can stick to your guns, refuse the offer of work, or negotiate until you reach a date you both can accept. Be prepared to walk away. You are the talent and your customers need you.
- Work out all the details of the contract including the payment terms in advance of accepting the work and get everything in writing. If there is nothing in writing, you still have a contract but it’s verbal and it can be very difficult to prove what was agreed and the two parties often. He said/she said conversations get nowhere.
- If there’s nothing in writing and you haven’t discussed how and when you’ll get paid, you are entitled to be paid within 30 days. That may seem positive but in practice it simply leads to serious disputes. If you argue that payments weren’t discussed so you should be paid in 30 days, the customer is likely to argue that you accepted their standard payment terms which are 90 days (or sometimes longer). That’s difficult to resolve and can lead to the breakdown of a business relationship. Sort the details and get them in writing in advance.
- If you are offered work and handed a contract with all the customer’s standard terms and conditions on it, even if it’s 120 pages long, read it. Make sure you understand exactly what you are signing up to. You can’t argue later that you aren’t being paid fairly if you have agreed, with a signature, to accept payments in 120 days, or to allow a firm to hold back some of the money owed to you for a variety of reasons. We often build up good relationships with the people who give us work. We also need good relationships with the people who pay. You want them to like you enough to pay your invoice before they go home on Friday.