Payment Terms - and how to change them

Discussion in 'Growing and Managing a Business' started by somerandomdude, Oct 27, 2010.

  1. somerandomdude

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    Oct 27, 2010
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    My apologies if some details of this post are vague, I'm under NDA.

    The story goes - I worked for a company for several years (we'll call it Former). Last year I decided to go free lance, and immediately signed a Master Services Agreement with Former. This year, I have billed Former for 71k but have only been paid 20k. Last check was over two months ago.

    The majority of work I perform for this company is on behalf of other clients, who have contracts with Former. The payment terms in my MSA are "xxx will receive payment no more than 30 days after our client has paid us".

    So here's my issue: it's been 80 days since I completed the work, but my parent company's payroll wont tell me if they have been paid or not from their client. I've called the VP, Payroll, and my only friend in Operations but no one will give me any information. Essentially my payment terms are "infinity + 30", and no one can operate successfully that way. In addition, I've used every possible line of credit to stay afloat while working 60 hour weeks for Former since June. If I can't get a payment soon, my freelance days are over.

    I asked my good friend the VP of said company if we could change my terms to a mutually agreeable standard term aka Net45 - his response was to change the term to "xxx will receive payment no more than 7 days after our client has paid us". Unfortunately, this is now "infinity + 7".

    Any advice on how to get a normal payment term? (Net30 or Net45 preferrably). I know I screwed up in agreeing to infinity + 30 in the first place, but it was a very rough time for me and I didn't take things literally. I'm looking for strategy advice, but anyone else in the same boat please do chime in.
  2. Fergal

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    Nov 18, 2007
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    Welcome to our business forums somerandomdude. Sorry to hear about your predicament. Do you have a feeling for why the company will not communicate with you and explain why they are not paying you? The least they could do is explain the circumstances behind the delay.

    It's understandable that you were keen to get some work, when you started out freelancing and it's unfortunate that your contract stipulates that you will get paid only after Former has received payment. You deserve to be paid when you have done the work, and you are not responsible for how successful Former are at collecting payment from their clients.

    Personally I would approach this by sending a letter to Former, explaining the payment delays you have experienced from them and that you wish to change your payment terms with them. Tell them what your new terms are and provide them with a new contract that includes those payment terms. Basically you will not want to do any further work for this company until they agree to the new terms. Unfortunately there is a risk that you could lose their business by doing this, but it is better than working for them and not getting paid.

    You may also want to give them a credit limit and state that once they have reached this limit, you will not do any further work for them until you have received some payment from them.

    Good luck with it, please post back with your thoughts and to let us know if you have any further questions.
  3. seanstevens

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    Jul 27, 2009
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    Don't want to be negative but you have made the most basic of errors for any freelancer / company. Payment terms MUST be specific otherwise you have no control whatsoever. Once you have contingencies such as waiting for something else to happen you are screwed.

    You need to rework your terms and conditions before you get stuck like this again. Only you can decide what credit you can afford to give. When first signing up with new customers you need to understand their payment patterns and methodologies. For instance if they operate on a "1 payment at the end of each month" schedule then you give them 45 or 60 days so that they are getting good terms from you and have 15-30 days to collect their own cash.. If they don't it is not your problem.

    You should also chuck terms in stating that you will add the relevant fees and interest for any delayed payments and have the right to use a third party collection agency for any non-payments.

    Given you have signed a contract (i assume) stating the terms in your OP then there is little you can do to force them to pay. I would suggest a strongly worded letter to the VP/Director of Finance explaining that you are not happy with the lack of communication and you expect to be kept fully in the loop. You also agreed to the terms on the understanding that the 'formers' credit control practices were up to scratch. Given that they are not then immediatley your terms are now xx days from the date of invoice. Be prepared if you go this route you may not get further or a lower business level from them as a lot fo VP/Directors think they have power and may cut your service.

    The question to ask yourself is
    A. Can I afford to work for these guys on the current terms? I suspect not.
    B. Can I afford NOT to work for these guys?
    C. How can I replace their business?

    Also, going forward, make sure you credit check every new customer if you are going to offer them credit regardless of who they are. A decent credit check will also include details of their current payment practices that will help you set terms.

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