Payment terms
Your business payment terms are:
- the way you let your customers pay for your goods or services
- when you expect them to pay by.
Payment terms usually include:
- what payments methods you accept
- whether you provide credit and the terms of credit
- debt collection policies.
In Australia, payment terms are part of a sales contract. This means they are under contract law.
Why payment terms are important
Payment terms affect your business:
- income
- costs
- risk of insolvency
- cash flow – offering credit makes your cash flow less predictable.
Credit terms
Offering credit means giving your customers goods or services upfront without payment. If a customer buys on credit, they owe your business a debt. Standard terms of credit include:
- no credit
- 7 days to pay
- 21 days to pay
- 28 days to pay.
Offering credit increases your sales. But it can be risky if your customers don’t or can’t pay their debts. You may use credit checks to reduce the risk. You may also restrict credit if you’re concerned that a customer might not be able to repay. Note that the buyer does not own the goods until they’ve paid you in full.
Debt collection policies
Your debt collection policies describe what you’ll do if a customer doesn’t pay their debt. Examples of debt collection activities include:
- phoning or emailing customers to request payment
- sending a letter of demand
- using debt collection services.
Debt collection costs you time and money. It’s a good idea not to spend too much time collecting debts – if it’s not worth it.
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