Whenever you want to buy a product or avail of a service, most especially if the item in question costs a great deal then it is important to go over the payment terms. Aside from the cost, you would want to know how you would be able to pay for the item or services since some businesses have their own individual terms in regard to these. When preparing a contract, one important element included should be the payment terms and if this is agreeable to the client, then both parties then can proceed thereafter. To learn more about this, let us discuss this further below. And if you need to start working on this, check out our free payment terms samples that are downloadable on this page.
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1. Payment Terms Acceptance Notification
2. Relief Fund Payment Terms and Conditions
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4. 12 Month Contract Payment Terms
5. Payment Terms and Declaration Form
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7. Request for Change in Payment Terms Letter
What are Payment Terms?
Payment terms vary from one establishment to another, for instance for over-the-counter sales you usually have two options which are to pay in cash or in credit. Or perhaps you can use designated vouchers and the such. But if you buy online, you may have a number of options to choose from like using your debit or credit card, cash on delivery, or other alternative online payment facilities. Basically, payment terms are the conditions set by a business regarding part of a sale between two parties which is the buyer and the seller. Different industries usually set their own terms, depending on their line of business. For example, bulk orders require an invoice to be given to the seller where payment terms are set upon the document. Or for two parties who are bound by a contract, one particular section in the document includes the terms of payment that the other party is obligated to follow.
In most cases, payment terms have different options to give the buyer leeway. And another important feature is the details about the expected payment on a sale. So expect to include a deadline when writing the payment terms.
How To Create Payment Terms
As mentioned, different businesses have different methods and terms. You cannot expect to pay a large number of construction materials on COD (cash on delivery) since this usually requires advance payment. The importance of laying out these terms is to manage clients’ expectations, as they go through the details this gives them an idea of when, how, and what method should be used to close the sale. Without it, could lead to discrepancies and misunderstandings and may impact the company’s cash flow due to late payments. So it is essential that the terms are properly laid out for the client to accept. To help you prepare the payment terms, here are several steps to guide you on the process.
1. Payment Method
Determine what kind of payment method works best for your business. It’s a given that cash, credit cards, and even cheques are commonly used. But can other methods apply? Is it feasible for your company to accept cash on delivery, downpayment, staggered payment and etc? So whichever works for the business, make sure to state it clearly so the client is given options to choose from.
2. Due Date
A due date is a deadline by which payment should be made. There are different ways to present a due date, you can indicate a specific date or you may state, for example, payment terms are 30 days from the date of issue of the invoice. These dates indicate when the payment is expected and can result in a variety of different penalties in the case that the date passes without the specified payment being made.
You can also offer discounts on your payment terms, to encourage early payments.
It is quite advisable to let your clients know that penalties will be imposed for late payments. Especially if you have set a deadline of 30 days to compensate for time and money lost. Also, penalties will encourage customers to make early payments as well.
In case there is a need to change the payment terms, make sure that the client is aware of this in advance. You do not want to suddenly make all those changes while the client is in the middle of completing his or her transaction.
What is an Invoice?
An invoice is an accounting document that contains the list of items or services rendered, the prices, and the payment terms.
What happens if the client refuses to pay for the invoice?
Before you decide to take matters to court, try to send a demand letter or talk to the client and see if you can come up with agreeable terms. If not, you can sue the client for non-payment of invoice.
What is a 50/50 payment terms?
This is when the client must make a 50% downpayment before work can begin, the remaining balance is paid when it is about to be finished or is completed.
Setting up your company’s payment terms will help your company get paid on time and manage every client’s expectations. In case of any discrepancies, you can you the terms as a reference, stating that both parties have agreed on it beforehand. To make it easier for you to create one, download our free templates above!
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