Creating A Payment Policy For Your Trade Business
Do you struggle with getting clients to pay you on time? If so, you're not alone. Thousands of other trade businesses suffer from poor cash flow and uncertain profitability due to late-paying customers.
It's a complex issue requiring you to balance your valued clients' needs with the need to recoup what you're owed so you can invest it back into your business. While there are several ways you can speed up the process of getting paid for your hard work, a payment policy is by far the easiest method of setting a baseline expectation of prompt payment.
What Is A Payment Policy?
A payment policy sits within your terms of service and lays out the expectations you have for a client when it comes to settling their debt to your business and what they can expect of you should their invoice run overdue. A clear and easily accessible payment policy is essential to running a trade business, especially now that we conduct so much of our payment processing online.
An additional benefit of a payment policy is that it gives trade business owners some legal protection should their clients fail to pay. Unless they sign an agreement, you won't be able to bring the full force of the law down on a late-paying customer, but a payment policy provides some reinforcement that can help push clients to pay on time.
Should You Use A Payment Policy Template?
You can find many payment policy templates online, but they aren't always the best fit for trade businesses. Typically, it's best to create a payment policy template from scratch because nobody knows the intricacies of your financial systems like you do. Suppose you do decide to use a downloadable payment policy template. In that case, we recommend running it by a legal professional to ensure it completely accounts for all types of payments your trade business receives. The last thing you want is a customer citing a loophole in your payment policy as the reason for their non-payment, so make sure you've covered all your bases before using a pre-built payment policy.
What Your Payment Policy Needs To Include
Let's cover the basics of what goes into a payment policy, so you can start crafting one for yourself or adapt a payment policy template to fit your needs.
We'll include any extra considerations you need to make along the way, along with explanations of why they are important to include.
When Payment Is Due
Due dates are an essential inclusion in any good payment policy. Prompt payments mean setting a deadline, and your payment policy should outline all the details explaining the how what and why of when you expect to be paid.
Whether it's a week, a fortnight or a month after the invoice is received, stick to the payment policy's due date parameters. Otherwise, you could face a horde of angry customers asking why they have a week to pay their invoice when your policy clearly states they had two.
Co-Pays And Deductibles
Making your customer aware of co-payments and deductions is a great way to push them to pay faster so they can take advantage of available tax breaks or other incentives. Your payment policy should also include any in-built deductibles, so customers have a good idea of what they do and don't have to pay for when their invoice arrives.
Forms Of Payment
Give your customers more payment options, and they'll pay quicker. That's the philosophy you want to follow regarding your trade business cash flow. Digital payment providers come in their dozens these days, and finding a vendor that allows a seamless transaction of funds from your customer to your business has never been easier.
Make sure to lay out which vendors you transact with in your payment policy and procedure document, as you may need to refer customers to it in future if they have questions surrounding payment processing.
Policy Regarding Non-payment
You can't escape late-paying customers, no matter how well you structure your payment policy and how much effort you put into creating an easy system by which clients can pay you what they owe.
While a payment policy doesn't usually cover late or non-payment, you can create an entirely different document that covers all your bases and sits alongside your payment policy and procedures. We call this, you guessed it, a late payment policy, and luckily for you, we've already written a comprehensive guide on why you need one and how to create one.
Now you're equipped with everything you need to create a payment policy and procedure document that helps customers understand how and why they should be prompt with paying you.
Looking for a way to map incoming cash and see whether your trade business is profitable? Read our guide on creating a profit and loss statement from scratch, with specific information for trade business owners.