How long should you leave your customers to pay an invoice?

In the business world, payment management is a crucial aspect that can significantly impact a company's cash flow. The issue of payment terms—that is, the time given to customers to settle an invoice—is therefore central. This article aims to explore the various possible payment terms, the legal aspects of invoicing, and strategies for optimizing payment management and dealing with delays.

The different payment deadlines

Payment terms vary depending on several factors, including the industry sector, the relationship with the client, the amount, and current market practices. Standard terms often include:

• Immediate payment : used for real-time transactions (internet, shop, often for physical goods)
• 30 days end of month : allows the client to pay the invoice within 30 days of the end of the billing month (most common in B2B and service sales: suitable for recruitment)
• Customizable day calculations : some choose a specific number of days (45, 60, etc.) after the invoice date (to be adapted according to your business model, if you have working capital, if the amounts are high, etc.)

Legal aspects of invoicing

Legislation often regulates payment terms to prevent abuse. For example, in some countries, the maximum permitted payment period can be 60 days. It is crucial to research the applicable laws in your jurisdiction to define a compliant credit policy. Be careful not to immediately enter into a legal dispute (at least, it's common to slightly exceed the deadline depending on the company's payment practices or due to oversight).

Optimal payment management

For effective management, we advise you to:

• Define a clear credit policy : establish precise rules regarding payment deadlines and communicate them clearly from the outset of the business relationship. Ignoring these issues for fear of addressing them is a serious mistake that will have far-reaching consequences soon after. Clarifying things beforehand and ensuring everyone understands is essential. You certainly don't want to waste time on legal proceedings with late payers.
• Use billing management tools : software can help track invoices, calculate deadlines, and send automatic reminders. Automation will save you valuable time and a lot of headaches! ;)
• Payment reminders : In case of delays, a structured reminder procedure is essential. Start with friendly reminders before escalating the situation. Tip: Don't immediately resort to harsh measures; accusing your clients of being late will only alienate them. Instead, feign oversight or offer payment solutions ("I see the invoice payment is a little late; would you like us to set up a payment plan?" Generally, no one wants to be considered a bad payer).

Reduce payment times

To speed up payments, consider the following tips:

• Incentives for early payment : offer discounts for early payments.
• Late Payment Penalties : Late payment fees can encourage customers to pay on time.
• Electronic invoicing : reduces invoice processing and sending times.
• Outsourcing your payments : some payment solutions, like Alma, pay you the invoiced amount immediately and handle collecting the money from your client. No more chasing, no more stress over late invoices, less worry.

Faced with payment delays

Despite all precautions, payment delays can occur. Here's how to deal with them:

• Proactive communication : Contact the client to understand the reason for the delay. It's crucial to seek answers before acknowledging the delay. This will strengthen your relationship and help you find a solution more quickly.
• Payment plan : if the client is experiencing financial difficulties, offer a payment schedule, a deferral or another solution that suits them without jeopardizing your situation.
• Legal recourse : As a last resort, legal action may be necessary. Consult specialist lawyers.

Conclusion

Managing payment terms is a delicate balance between maintaining good customer relationships and ensuring sound cash flow for the company. On average, businesses tend to opt for a 30-day end-of-month payment term, but this standard can vary. It is essential to calculate the right term for your business, while remaining flexible and attentive to your customers' needs. A well-defined credit policy, combined with proactive invoicing and collection management, can greatly contribute to your company's financial health.