IT Industry Invoice Payment Terms
Discussion
What terms are people getting on their Invoices for IT contracts?
I've got a customer stating that 60 days for payment is acceptable.
Not wanting to laugh in their faces... but this is totally unacceptable for a small IT Company.
What's the industry standard-norm these days for date of Invoice to the money arriving in your account?
I've got a customer stating that 60 days for payment is acceptable.
Not wanting to laugh in their faces... but this is totally unacceptable for a small IT Company.
What's the industry standard-norm these days for date of Invoice to the money arriving in your account?
Its not an IT thing, but a business thing in general. Some people take the mic. Sometime because they can, as they are in the position of economic power, and some because they don't have the money...
Have you already completed the work?
You can go for payment before completion of work, payment within 7 days of completion, 28/30 days, or 60 days.
Its up to you, what you need. A good way is to give the customer 'options' so that they cannot complain either way. That is, you inflate your price by 10%. Give 5% discount for payment within 30 days, 10% for within 7 days. No discount for within 60 days. When you quote prices, do it in writing and explain this policy, or clearly quote the price inclusive of the maximum early payment discount.
They are making you pick up the cost of essentially getting 60 days credit and interest on a loan/overdraft etc. If you give them the option of a discount as above, then they can make their choice on how important this cost and discount is to them...
Have you already completed the work?
You can go for payment before completion of work, payment within 7 days of completion, 28/30 days, or 60 days.
Its up to you, what you need. A good way is to give the customer 'options' so that they cannot complain either way. That is, you inflate your price by 10%. Give 5% discount for payment within 30 days, 10% for within 7 days. No discount for within 60 days. When you quote prices, do it in writing and explain this policy, or clearly quote the price inclusive of the maximum early payment discount.
They are making you pick up the cost of essentially getting 60 days credit and interest on a loan/overdraft etc. If you give them the option of a discount as above, then they can make their choice on how important this cost and discount is to them...
Edited by JustinP1 on Wednesday 20th February 17:34
The Excession said:
What terms are people getting on their Invoices for IT contracts?
I've got a customer stating that 60 days for payment is acceptable.
Not wanting to laugh in their faces... but this is totally unacceptable for a small IT Company.
What's the industry standard-norm these days for date of Invoice to the money arriving in your account?
Well. We negotiate for each contract. The worst payment terms we have at the moment are 45 days. The downside is that out terms are payment on completion for small workpackages and for larger items - its payment on completion of line items at an agreed line item value.I've got a customer stating that 60 days for payment is acceptable.
Not wanting to laugh in their faces... but this is totally unacceptable for a small IT Company.
What's the industry standard-norm these days for date of Invoice to the money arriving in your account?
ICL once told us to take 120 day payment terms! Fueckers. Worst of all? Its 120 days after sign off (which they would delay as long as possible) and they wouldn't even BEGIN to look at your invoice until the 120 days were up. It actually meant 180 day payment.
These days? We write our workpackages small. If working to line items - we make 'em small. Frequent updates and deliveries of work-in-progress to site ensure that the MAXIMUM 45 day payment terms mean we get out money in two months.
We don't subcontract. If we did? We'd negotiate a "back-to-back" contract wherein the contractor gets paid within (say) five days of us being paid. In reality they'd get their cash the same day but you have to have some leeway for the banks to do their stuff. If worked on "back-to-back" terms and its fair.
People who don't want to absorb cash flow or risk are called employees and they don't earn so much.
pontypool said:
Depending on size of ££ involved either 50% or 30% up-front before we even think about starting. Got burned to many time when starting up years back.
Standard terms 28 days for "balance on completion", but in reality this means anything up to 90 days depedning on how they feel!
We would do something like this on purely bespoke work, too. Standard terms 28 days for "balance on completion", but in reality this means anything up to 90 days depedning on how they feel!
Start: 40%
Milestone: 30%
Sign off: 30%
...is pretty fair.
Mostly we don't ask for any money for development work up-front these days. Reason is that we ship a software product generally and provide modifications to it for a fee. We're happy to roll up the deal but generally we're after the licence money on installation (if purchasing) or the rental cheque at the end of the first month...which is payable bang on the day none of yer 45 days after nonsense.
Don said:
pontypool said:
Depending on size of ££ involved either 50% or 30% up-front before we even think about starting. Got burned to many time when starting up years back.
Standard terms 28 days for "balance on completion", but in reality this means anything up to 90 days depedning on how they feel!
We would do something like this on purely bespoke work, too. Standard terms 28 days for "balance on completion", but in reality this means anything up to 90 days depedning on how they feel!
Start: 40%
Milestone: 30%
Sign off: 30%
...is pretty fair.
Mostly we don't ask for any money for development work up-front these days. Reason is that we ship a software product generally and provide modifications to it for a fee. We're happy to roll up the deal but generally we're after the licence money on installation (if purchasing) or the rental cheque at the end of the first month...which is payable bang on the day none of yer 45 days after nonsense.
40% kick-off
25% Milestone 1
25% Milestone 2
10% Sign off on completion
However this is a development project and not a licence based one. I think that's where I'm going to come unstuck.
It's the payment terms that are going to cripple me.
I'm fortunate in that the Customer is UK based and I'm based in IRL - so I've never got any VAT liabilllity on these contracts.
Still, this time a good 80% of the contract is going to a sub-contractor here in Ireland. Of course I've got 21% VAT liabillity on their invoice, which is pretty much taking my cut until I can claim that VAT back.
If I'm waiting 45-60days for my customer to pay, and I've got 21% VAT liabillity on my Contractor (let alone paying them) I'm screwed.
Contract price is circa £60K so not a biggy, but certainly worth getting.
Anyway, I've outlined my predicament to the contracts manager so we'll see what they can do for me.
Edited by The Excession on Wednesday 20th February 20:17
Mine used to just "happen" 2-3 days after invoice 
Now it's a bit different - dealing with Joe Public and didn't really have any terms, but after some took a long time we've put in 28 days and indicated a penalty to pay.
I do like the 10% inflation idea though! That's something maybe we should look to do.
We also had a spate (well two!) of clients losing cheque books... We now give direct payment details as well
Now it's a bit different - dealing with Joe Public and didn't really have any terms, but after some took a long time we've put in 28 days and indicated a penalty to pay.
I do like the 10% inflation idea though!
That's something maybe we should look to do.We also had a spate (well two!) of clients losing cheque books... We now give direct payment details as well
30 days is the max for IT, and most have to earn it with a few upfront payments before they get to full 30 days.
I always say im happy to finance a customers business if they really need the cash but im not as cheap as the bank
you can always factor the debt, pass the charge to the customer and go from there, done that a few times too.
I always say im happy to finance a customers business if they really need the cash but im not as cheap as the bank
you can always factor the debt, pass the charge to the customer and go from there, done that a few times too.
Edited by DucatiGary on Thursday 21st February 16:14
On the industrial imaging side of what I do then I quote saying 7 day terms but as I'm working for big outfits, I expect it to take upto 30 days for it to filter through the system. (But it means I can start chasing the accounts dep't that much quicker & keep the payment cycle a bit shorter). Even with the big outfits it rarely takes more than 30 days but my service is an ad-hoc one rather than supplying widgets on a regular basis.
On the IT side...
Joe Public is payment with order or on collection (of repairs). SMEs get 7 day terms apart from a few regular, trusted clients who can pay in 30 but they're usually quicker than that anyway. I can only think of one who takes the mick but he's local & I always get a cheque when I call in.
I also have a very good commercial debt collecting friend but have rarely needed his services!
On the IT side...
Joe Public is payment with order or on collection (of repairs). SMEs get 7 day terms apart from a few regular, trusted clients who can pay in 30 but they're usually quicker than that anyway. I can only think of one who takes the mick but he's local & I always get a cheque when I call in.
I also have a very good commercial debt collecting friend but have rarely needed his services!
We give 30 day terms because it's just not practical to large companies to ask for payment any sooner.
I would love to get paid within those 30 days, but normally I chase on day 31 and get payment about a week after that.
I would also love to be in the position to demand money up front! The companies we deal with would never dream of paying up front for our software or implementation. We'd be laughed out of town if we even asked.
I would love to get paid within those 30 days, but normally I chase on day 31 and get payment about a week after that.
I would also love to be in the position to demand money up front! The companies we deal with would never dream of paying up front for our software or implementation. We'd be laughed out of town if we even asked.
There is a diverse range of practices when it comes to a purchase ledger. The common ones I have come across are:
Pay strictly on the terms of invoice (rare).
Pay on the next payment run occurring after the due date.
Pay on 30 days net monthly for everything.
Pay when all balances which are current month - 1 or older when a statement is received.
Pay anyone who rings up and complains they havent received payment.
I would point out that anyone in IT who is dealing with support contracts for mission critical stuff has the client by the balls. One of the T&C's of our support contracts is that support may be withdrawn if the client's account is in arrears even if the amount due is nothing to do with the support contract.
Pay strictly on the terms of invoice (rare).
Pay on the next payment run occurring after the due date.
Pay on 30 days net monthly for everything.
Pay when all balances which are current month - 1 or older when a statement is received.
Pay anyone who rings up and complains they havent received payment.
I would point out that anyone in IT who is dealing with support contracts for mission critical stuff has the client by the balls. One of the T&C's of our support contracts is that support may be withdrawn if the client's account is in arrears even if the amount due is nothing to do with the support contract.
plasticpig said:
I would point out that anyone in IT who is dealing with support contracts for mission critical stuff has the client by the balls. One of the T&C's of our support contracts is that support may be withdrawn if the client's account is in arrears even if the amount due is nothing to do with the support contract.
With have the same clause but things would have to be pretty bad before we pissed a customer off by withdrawing support.mouseymousey said:
plasticpig said:
I would point out that anyone in IT who is dealing with support contracts for mission critical stuff has the client by the balls. One of the T&C's of our support contracts is that support may be withdrawn if the client's account is in arrears even if the amount due is nothing to do with the support contract.
With have the same clause but things would have to be pretty bad before we pissed a customer off by withdrawing support.ok, so far, I'm up/down to 30 days.
Means we see the money in our account in 35 days, then the subby get's there money the following x days (based on the money landing in our account and being transferred to their's)
Seems like this is pretty reasonable, though I'm fuming a little in that I stated 14 days in the proposal and they (the customer) agreed that the work could be done.
Seems like no one is reading the proposal too sharply, or more likely it just gets passed up the layers of SAP untill someone says no.
Seriously, the proposal went in with 14 day terms, their contract came out with 45 day terms. I know the contract is king but do I have any come back on the fact that the proposal was verbally agreed?
Means we see the money in our account in 35 days, then the subby get's there money the following x days (based on the money landing in our account and being transferred to their's)
Seems like this is pretty reasonable, though I'm fuming a little in that I stated 14 days in the proposal and they (the customer) agreed that the work could be done.
Seems like no one is reading the proposal too sharply, or more likely it just gets passed up the layers of SAP untill someone says no.
Seriously, the proposal went in with 14 day terms, their contract came out with 45 day terms. I know the contract is king but do I have any come back on the fact that the proposal was verbally agreed?
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