In episode one of Sage Startup Business Essentials, accountant Nicky Larkin explains everything you need to know about how to establish payment terms, while Stefan Fritz gives his top tips for how small businesses can get paid faster.
Payment Terms Overview for Small Businesses
In this video, I provide an overview of payment terms that founders and owners of small businesses and start-ups should be mindful of. Understanding payment terms and the effect they can have on your business’ cash-flow is critical.
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How to Establish Payment Terms
If you’re wondering how to establish payment terms with a customer, there are a few key things to think about.
People always focus on the price, yet they get confused when asked, “so what are your payment terms?” And when you get asked that question, you need some answers ready.
Payment terms are all about offering someone credit. And that means, are they good for it?
Because once you issue an invoice and don’t take cash for your goods and services at the point of sale, you are offering your customer a line of credit. And that means you take on the risk of them paying late, or worse, not at all.
For many businesses, especially in the B2B world, payment terms must be negotiated, alongside the price. With B2C businesses, there often is more of an opportunity to dictate good terms, for you the business owner, right from the start.
Examine your cash flow
We asked accounting expert Nicky Larkin for her opinion on how to establish payment terms. She has wide experience in setting up finance teams and systems, managing all aspects of financial and management accountancy, installing best financial practices,s and gaining company financing.
Nicky told us: “To establish payment terms, its key to look at your cash flow, because it’s really important to ensure that you have sustainable cash to grow your business, it’s very easy to have a profitable business, but actually you could be over trading and your growth could be stunted because you have a lack of cash.”
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