That 'standard' 30 day payment term is a trap for small businesses

I was doing some freelance design work on the side last fall and kept agreeing to net-30 payment terms because that's what the clients asked for... sounded normal enough. Then I realized I was basically giving them an interest-free loan while I had to pay my own bills upfront. After three months of this I actually sat down and calculated it out - I was waiting on about $2,400 in invoices at any given time. Talked to a lawyer friend over coffee and she pointed out most states let you charge interest on overdue payments, but you have to put it in the contract first. Now I use a 15 day term with a 2% late fee after 30 days and it's crazy how many clients just pay faster. Has anyone else had luck shortening their payment windows without scaring off the big companies?

2 comments

2 Comments

ivan4621d ago

Man oh man, I totally feel your pain on this one. I learned the hard way too when I was doing web stuff for a local restaurant chain and they kept me waiting 45 days on a $3k invoice while I had to buy hosting and software out of pocket. Isn't it funny how we all just nod along to net-30 because we think that's how business works? I started offering a 5% discount if they paid within 10 days and most of them took it, which actually saved me more in stress than it cost in revenue. The big companies actually respected me more when I had clear terms because they knew I wasn't just some pushover freelancer. Keep at it, you're doing the right thing for your sanity and your wallet.

brooke4481d ago

Whoa, strong disagree with @ivan462 - chasing nickels with early payment discounts just teaches clients your rates are negotiable.