Getting paid can sometimes be tough – but it’s often tougher for services businesses that may have trouble proving that the job is done.

The growing issue of cash flow and getting paid on time may have a lot more to do with your terms and conditions of how you carry out your business than just late payers. I’ve been working in the IT industry for a long time and managing payment structures is such a crucial part to surviving.

The “knowledge economy” requires us to take another look at buying and selling. In a product and goods orientated economy, deliverables and payments are very exact. A company buying oil filters from a factory in Dublin can order a set amount of oil filters at a cost of x per unit. When 5,000 filters are delivered as ordered, the contract is considered complete and the customer needs to settle or have an arrangement to settle their account. This may be COD, upfront or 30-days – or any option that both companies agree on.

Defining what we’re selling
Measuring and managing the success of the contract is quite easy. If any of the oil filters are considered faulty or not as they should be, they can be returned or exchanged on per unit basis or by batch. If the customer doesn’t pay – then their credit terms are usually shortened or removed. So companies operating on a 30-day term and fail to pay in 120-days may be moved to a COD or even upfront payment. The debt is clearly defined and it’s perceived to quite reasonable to request payment for goods already delivered.

In a modern, services based economy it gets quite difficult and often small businesses suffer because we continue to try to buy and sell in the same manner. Many services, like those offered by accountants, web designers, software consultants, contractors, painters, cleaners, marketing companies, hosting companies and so on are sold more like products – often offering a warranty and a fixed cost.

Typically services based businesses have a very high-level relationship with their clients. The nature of the work being provided means that the supplier needs to get paid while work is ongoing and before it’s completed.

Companies like Dell treat their product a bit more like a service – requiring a full down payment. Even where financed is used, Dell still get paid before a single PC gets assembled.

Avoid payment delays by implementing the following:

Have a good contract – set the expectations right at the start
Have a well written, clear contract that defines clear milestones and payment stages. Go to the point of noting payment dates and the deliverables attached. Make sure that if the client needs to be involved, such as inspection, sign-off, information – that any added delays other than what’s accounted for, needs to be borne by them, as this is part of the cost of delivery.

There is nothing worse when two parties have separate expectations about what they’re buying and what they’re paying for.

Get the project spec right!
“This isn’t what I asked for” are the worst words any service provider wants to hear. By the time you’ve heard this, it’s already too late. At best, you can work out a new URS (User Requirement Specifications document) and salvage or redo what you’ve produced or at worst cut your losses and move on.

A clear specification not only contains a detailed description of what is being delivered, but how that delivery should be measured. It could also clearly detail what it’s not. Any points that require the client to sign-off should also detail what happens if they don’t and what impact that will have.

Remember, you are carrying out work on their behalf. You will have to assume and bear all of the costs if they carried out the project internally – so make sure you’re covered. It’s a lot easier to do this at the outset and document it.

Develop your own terms and services
This is particularly useful where the client doesn’t provide their terms. Ask the customer to sign-up to your Terms of Trade with the contract and include a copy with your quotations and invoices. Remember to keep a copy too. Take a look at a Terms of Trade professional company like http://www.eccreditcontrol.ie.

One key point is that the project may have no value to your or anyone else – therefore the customer needs to be aware that the full amount is due if the project is cancelled.

Collecting payment

A good way to ensure you get paid on time is to provide clear separate documentation to the accounts department and to get a nominated contact there. Provide the Terms of Trade and payment plan, signed by the client and supply all of your VAT, Incorporation and Bank account details including SWIFT information for cases where a foreign parent company might be making the payment. You can prepare this in advance and re-use it as a PDF. Include your contact details too and give them a payment plan noting the dates.

If the company doesn’t provide you with conflicting terms of trade, then your Terms become legally binding and that can dramatically reduce collections if things do go sour.

Direct Payments
Where you have 3rd party costs that are directly related to this project or have been set by the client – try to get the client to pay these directly as they fall due – don’t end up in a position whereby you are funding the project or get stung if the project or client collapses. Where you have to make payments, ensure that you collect funds from the client and attach the same terms and conditions with your vendor as you have with your client.