May 16, 2022

Firm, Flexible, and Using Favors: How to Better Your Payment Terms

I’ve worked as a freelancer for nearly two decades, and in that time I’ve learned a lot about dealing with clients. For example, it’s a universal truth that small startups love stickers and metal water bottles, every marketing department is overworked, and the #general channel in Slack is the best place to be on Friday afternoons.

I’ve also learned that nothing throws a monkey wrench into a good working relationship with a client faster than friction when it comes to payment terms. When the money isn’t right, nothing else much matters. This is true for both sides of the relationship.

Over the years, I’ve learned that when it comes to payment terms, there are places to be firm, places to be flexible, and just the right amount of favors can help the client relationships really work to everyone’s advantage.

Let’s dive into these three aspects of establishing payment terms.

Where to be Firm

The starting block of your payment terms is your non-negotiables. As you run your business, you’ll quickly gain a sense of when your invoices need to be paid so you can cover your own expenses. Likewise, your clients will appreciate firm guidelines for payment, and the clearer they are, the easier they can fulfill them.

These inflexible payment terms should be written into your contract with each client and signed by both parties. While taking legal measures to collect on unpaid invoices is a matter of last resort, having signed contracts will give you a leg-up in the worst case.

Payment Deadlines – Be it net15 or net30, determine the invoicing cycle that works best for your business and be firm with the timeline. Not only does this help your own business invoice on schedule, it clarifies to your clients when they need to transmit payment. Since certain payment methods take a few days to process, keeping a regular deadline will help clients maintain a payment rhythm. Recurring invoices is also a great way to make your business sticky.

Using an automated invoicing system like Sunrise makes recurring invoices a nearly set-it-and-forget-it process, as well as sending reminder emails a few days before each deadline.

Invoice Templates

Late Payment Penalties – More and more businesses and freelancers are writing late payment penalties into their contracts and work agreements these days. If you decide to employ these penalties, keep firm to the terms you have outlined. There’s no use in warning about late fees if you don’t actually enact them.

A 1.5% to 3% interest per month on unpaid invoices is a common fee; not too much to upset the client too much, yet enough to make them be more prompt.

Auto Reminders

Walking Away – Finally, be firm in walking away from clients who just can’t seem to stick to your payment terms. Chronically late payments show that your time and work isn’t respected. While it might sting in the short term to part ways with a client, the stress of late payments is ultimately not worth trying to make the relationship work.

Where to be Flexible

Once your firm parameters are set and agreed upon, there are still many ways to stay flexible when you are receiving payments from clients. In a sense, the when of payments may not be flexible at all, but the how of payments can have a wide range of options that will make accounting easier for your clients.

Types of Payment – Gone are the days of cash and checks. You run (or should be running) a modern business, and modern businesses can accept payments in many different ways.

Here is a list of the most common payment methods today:

  • Credit & Debit Cards
  • Google Pay
  • Apple Pay
  • Venmo
  • PayPal
  • WePay
  • Stripe
  • Square
  • Zelle

How many of these payment methods is your business set up to receive? And accepting cryptocurrency payments such as Bitcoin and Ethereum is just over the horizon as well! The more options you can offer your clients, the easier (and faster) your invoices will be fulfilled.

Method of Invoicing – Another place to be flexible is how you send your invoices. Not only should you watch out for bad invoice etiquette, you should send invoices that fit the workflow of your clients’ accounting the best. For example, I usually send a link to my invoices that live in my Sunrise account, but some clients still prefer to receive them as PDFs or even in plain text.

Some modern clients eschew email altogether and prefer invoices sent through SMS texts (another place sending a link is extremely useful). And some clients prefer to log into a customer portal to view each itemized invoice online, with the option to pay through said portal as well.

Sunrise Customer Portal makes it easy for your customers to pay you.


Where to Use Favors

Everyone likes a good discount. Your clients like discounts too, and offering the right favors can grease that payment relationship more than anything else.

But is offering incentives a business-savvy strategy at all? Absolutely. Not only will your business get paid sooner, which helps your positive cash flow, it can greatly reduce the risk of late payment and nonpayment. If you regularly offer your clients early payment discounts, you can even factor that into your hourly/monthly rate at the start of the relationship.

Some favors/incentives your business can consider:

Early Payment Discounts – These discounts are the most common form of incentives. Often a business will write into the work contract that if an invoice is paid in the first 10 days (of a net30), a 1% to 2% discount will be provided.

This incentive can be psychological more than anything else. Your client will feel like they are getting a deal by processing what they owe you sooner, and it can increase a sense of loyalty for a small fraction of payment.

Up-Front Payment Discounts – Getting paid upfront is a tactic that many freelancers use to avoid the nightmare of chasing down payments after the fact. Avoiding that chore is often worth a discount (sometimes even as high as 5%) as it provides peace of mind.

Retainer Payment Discounts – As the client relationship becomes more trusted on either side, offering to be put on retainer can be a win-win. For your business, you know that a monthly retainer payment will be coming your way at a set time, for a set amount. That makes it simple to predict income streams, no matter the amount of work. On the client side, a retainer system effectively keeps your services locked in at a set cost.

Due to the consistent work and pay, it’s common for businesses kept on retainer to offer a discount on their hourly rate, often as much as 10%. The assurance of steady work more than makes up for the discount, especially for freelancers who can sleep a little easier knowing that they won’t have to scramble for new clients next month.

Your business’ payment terms should mesh with your clients’ expectations by both being firm and flexible, as well as feeling like a great deal in their eyes. 

Ready to invoice like a pro? Sunrise can help. Click here to get started with free invoicing software today.

About the author

Robert Woo
Robert Woo is a freelance writer & marketer who has been running his business with Sunrise for more than a decade. He focuses on the tech and finance industry, has been a featured contributor of Lendio, and regularly shares his experience with software via blogs and articles. During any remaining free time, he’s obsessing over fantasy football, writing for television, and playing guitar just enough to maintain the calluses on his fingers.


Bookkeeping for your small business.

Simplify your bookkeeping and save money