Payment Terms

Fireraiser
Fireraiser Feels At HomeRegistered Posts: 91
I was just wondering what payment terms people offer. If memory serves, the letter of engagement template from AAT says 7 days. I thought that was a bit tight, so started offering 30 days. I've now found that my clients split into 2 types. The majority pay on presentation probably because they are small scale cash based business. A small minority (well one to be precise) only pay when I chase payment. As I've offered 30 days, I don't feel entitled to chase until 25 days. So I'm thinking of changing to 14 days. It won't affect the good payers and would allow me to chase the slow payer earlier.

I'd appreciate your views and the fruits of your experiences.

Comments

  • jamesm96
    jamesm96 Experienced Mentor Registered Posts: 523
    Fireraiser wrote: »
    I was just wondering what payment terms people offer. If memory serves, the letter of engagement template from AAT says 7 days. I thought that was a bit tight, so started offering 30 days. I've now found that my clients split into 2 types. The majority pay on presentation probably because they are small scale cash based business. A small minority (well one to be precise) only pay when I chase payment. As I've offered 30 days, I don't feel entitled to chase until 25 days. So I'm thinking of changing to 14 days. It won't affect the good payers and would allow me to chase the slow payer earlier.

    I'd appreciate your views and the fruits of your experiences.

    You'll get lots of recommendations to take your payments by DD or SO (note least from myself), circumventing the problem altogether. That said, we offer 30 days to clients not on DD, unless we're a bit unsure that they're good payers in which case we'll either offer just 14 days, or ask for 50% up-front.

    One effective trick is to tell those poor payers (excuse the pun) that you'll need to increase their fees by 5%, but if they pay your invoice on presentation then you'll waive the increase. It's a like an early settlement discount but in reverse, so that it doesn't cost you anything to get them to pay. And, if they don't pay on presentation, you get an extra 5% (assuming they don't do a runner!)
  • villapb
    villapb Trusted Regular Registered Posts: 357
    Reading through ethics today for att...........says if you offer instalments to pay invoices, you should have a credit license and be fsa...................lol
  • villapb
    villapb Trusted Regular Registered Posts: 357
    sorry meant to say...........answer to fsa,,,, not ................be fsa.....
  • burg
    burg Experienced Mentor GloucesterModerator, FMAAT, AAT Licensed Accountant Posts: 1,441
    villapb wrote: »
    Reading through ethics today for att...........says if you offer instalments to pay invoices, you should have a credit license and be fsa...................lol

    You can get around this by charging monthly. Ours includes access to us for advice etc so bills are raised monthly not billed annually and credit given.
    Regards,

    Burg
  • jamesm96
    jamesm96 Experienced Mentor Registered Posts: 523
    burg wrote: »
    You can get around this by charging monthly. Ours includes access to us for advice etc so bills are raised monthly not billed annually and credit given.

    Yeah exactly.

    I think the FSA thing is over the top; solicitors don't have to account to the FSA for the client money they're holding on account. The AAT have their own guidelines on client money so as long as you're sticking to them I can't see why you'd need to go any further. I don't really see how allowing clients to pay monthly is any different from offering 30 days credit on invoices!
  • villapb
    villapb Trusted Regular Registered Posts: 357
    Hi James and burg was reading quickly the aat ethics info and stopped in my tracks when i read the credit info, i cant say what i thought at the time...................lol
  • villapb
    villapb Trusted Regular Registered Posts: 357
    opps att not aat, old habits.....
  • deanshepherd
    deanshepherd Font Of All Knowledge Registered Posts: 1,809
    The rule is actually that you are not allowed to offer credit terms exceeding 3 months without having a consumer credit licence which is very costly.

    Anyone billing annually but allowing their clients to pay monthly is at risk of default if at any time your client is more than 3 months payments in arrears.

    I would wager there are a lot of people in this position, particularly after the first invoice is raised.

    ICAEW and ACCA have group consumer credit licenses so automatically cover every member.

    I brought this to the attention of the AAT who chose to bury their heads in the sand stating that if the FSA found out that they knew their members were in default, and took no action, they would get into trouble.

    Pretty pathetic response I thought.
  • Monsoon
    Monsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071

    ICAEW and ACCA have group consumer credit licenses so automatically cover every member.

    I brought this to the attention of the AAT who chose to bury their heads in the sand stating that if the FSA found out that they knew their members were in default, and took no action, they would get into trouble.

    Pretty pathetic response I thought.

    I also raised the issue with them and was told they would look into it; I never heard anything back.

    That's rubbish!!

    Also: due on receipt.
  • deanshepherd
    deanshepherd Font Of All Knowledge Registered Posts: 1,809
    It started off positive enough.

    They told me they would email every MIP to find out how many people were affected.

    When the email was then sent out the question was completely pointless. Something along the lines of 'Do you feel you need a Consumer Credit Licence?'

    No explanation as to why they might. If anyone bothered to answer I suspect they got the resounding 'no' that they were hoping for to keep them out of trouble with the FSA.

    Given the resources at the disposal of AAT, a group licence is not that expensive.
  • Monsoon
    Monsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    I've just emailed them again :D
  • Monsoon
    Monsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    Update:

    I have received the following reply from the AAT:

    Thanks for the email. There is currently a discussion about a group licence for our members in practice. At this stage no decision has been made if it will be pursued. If we do decide to pursue this it will be advertised to our members in practice.


    This is an important decision and any MIP who has people who pay late (that probably means all of us!) should let the AAT know they really want this to be approved.
  • EMPG
    EMPG Settling In Nicely Registered Posts: 20
    Hello,

    I have worked in credit control for over 4 years and my experience is that the longer you give the clients to pay you the longer they will take, mostly in these days. I had dealt with clients that when asking for payment on or before 30 days (as per company terms) they will come back to me almost anrgy and saying that if the credit term is 30 days they will only pay "after" 30 days - they do not really want to understand the actual meaning of "within 30 days" and anythjing received after 30 days is old! Is frustating.
    You will always see great cleints who like to pay on time but a lot of people will try to extend payment the longer they can, it can be that their administration/managemnt is not very good or they are stryggling with cashflow.

    The best to do, as you have heard before, is "pay upon return" or if you want to be specific 7 days is reasonable. 7 days is not really that short lenght, you go to think that when clients look for your services they already need to know that a cost will incurr so they should plan themsleves better.

    I guess you always can offer the 30 day if "your pocket" feels confortable with it, but with the condition of setting up DD (althought this is not a confirmation of payemnt as the cleint can cancel the DD any time).

    The best option is to keep great customer rapport - do not just speak to them when you want the money
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