Net 30, Upon Receipt or EOM? Today, I’m going to tell you all about payment terms, payment reminders – and how important it really is to choose the right ones. But first, let me start with a story.
The Story of Unpaid Steve
Once upon a time, there was a talented young man called Steve. He was really good with his head and his hands, he was creating and crafting things, and he was even starting to generate an income out of what he created. Family, friends, friends of friends and – later on – their friends and their families gave him money for what he did and commissioned his services. It was all great. Until it wasn’t anymore.
It all started getting out of hand a bit, when he realized he was working day and night – but at the end of each month, his bank account was empty. Why? Because the one thing Steve was not so good at was collecting money. He didn’t really like numbers – at least not the ones on invoices and bank statements. He didn’t care too much about those numbers, and he hated everything to do with accounting. Especially invoices. He did not want to waste his precious time on that. So he did not give it much thought. Usually, he did not send out real invoices at all but got paid in cash. And if he did send out the occasional invoice, he used a free online invoice template and filled out the blanks. He wasn’t really sure what Net 30 meant, but he used it anyway. Because that’s what the free online invoice template said. Very seldom he sent out payment reminders – but he hated that. Usually, he preferred to keep on working and let the unpaid invoices stay unpaid than having to bother a client. His clients were all friends, family and friends of friends, after all. And he was just some guy lucky enough to earn money with doing what he loved.
Professional Payment Terms
‘Ha’, you might think. ‘But I am not like this guy at all! I am a professional. I know all about the importance of accounting. For example, I’m using a professional invoicing tool, that sends out automatic payment reminders.’ Good for you! But are you aware of the impact of payment reminders on your business? Setting up the right payment terms can make your business thrive – and using the wrong ones can actually kill it. Let’s see where Unpaid Steve went wrong.
- The perils of Net 30
First thing: Lose Net 30. I know, you have probably seen it on many invoices sent out to you. But should you do it just because everyone else is doing it? Would you jump from the bridge…? We’re all grown-ups here, so no need to finish that sentence. Let’s get back to business: Net 30 means that payment is due 30 days after invoice date. Which leaves the addressee of your invoice 30 days to cough up the cash. So, what happens when I tell you that? Do you pay right away? No. If you’re like most of the procrastinating population out there, you put the invoice somewhere, ideally together with other similar invoices, to pay them later. Probably in 30 days. No earlier. Now, as sender of the invoice: what happens in your bank account? It stays empty. For a full month. Even though you delivered the work on time. You’ll have to plan your budget a month ahead – and in freelancing as well as small business time, a month can be long. A long and unpredictable stretch of time you’re waiting to get paid. Let me tell you: If you’re not a huge business with a very good financial standing, don’t use Net 30. Use a shorter period instead, like Net 7 or Net 10. Or, even better, 7 days or 10 days. Which brings us to rule number 2:
- Keep your payment terms clear
The clearer you are about your terms of payment, the faster you’ll get paid. “Net 7” is not the same as “7 days”. Some people might not know what Net means; 7 days, on the other hand, is pretty clear. The clearest of all, though, is to set an exact date when payment will be due. This is why we’ve designed MoneyPenny to automatically print a due date on your invoices: You choose the desired period from a convenient dropdown menu, and MoneyPenny calculates the date, starting from the invoice date (which, again, is totally flexible and can be set up in advance).
- Set up friendly payment reminders
Unpaid Steve remains unpaid, because he has no strategy on payment reminders. In fact, he does not get the concept of payment, basically because he confuses it with asking for money. It’s a very common mistake. But, trust me, you’ve earned it! Every cent. That’s the deal: You deliver good work, a client pays good money. And if anyone does not pay you according to your own terms, well, then it is not your fault. Send out friendly reminders – friendly and firm, that is. If you’re using MoneyPenny, you can set up automatic reminders within seconds, using our professional templates or crafting your own reminder. And because MoneyPenny is international, you can send out reminders in many languages. A couple of clicks, that’s it. Never spend your precious time on late payments again.
- PayPal, Credit Card & Payment Strategy
How to get paid faster? Offer as many payment options as possible. Bank account, credit card, PayPal or Stripe? Let them choose! We designed MoneyPenny with flexible payment options, so you’ll get paid faster. But keep in mind: Depending on where you live, some of these services might charge a fee – to you, not your client. Usually, this fee a percentage of the money you receive. Which means, it is a percentage of your income you need to take into account when designing your payment strategy. Consider for example integrating this fee into your pricing system. Either way: the easier an invoice can be paid, the faster it will be. Which is what you and Unpaid Steve need to keep up the good work.
By the way: If EOM, PIA sound strange to you, here’s a good overview of international payment terms, see here. But don’t you worry: You don’t have to be fluent in business speak to make a business thrive. That’s what we’re here for!
Keep it up, work hard and have fun!