Payment terms, discount and prepayment: Getting paid safely

In short: With clear payment terms, deposit or prepayment and timely reminders the risk falls that customers do not pay or pay late.

In more detail: Many small businesses suffer less from a lack of orders than from late-paying customers. A clear approach to payment terms protects liquidity. This is general information and not legal or tax advice; rules and deadlines change, check them with the tax office, chamber or a tax adviser.

In Depth

Payment terms

• Payment period: deadline by which payment must be made, for example “payable within 14 days without deduction”. If not stated: due on receipt of the invoice, default at the latest 30 days after due date and receipt of the invoice.
• Cash discount: price reduction for quick payment (“2 % discount for payment within 7 days”). Calculate whether it is worthwhile.
• Deposit / instalment for larger orders.
• Prepayment for custom-made items and new customers.
• Payment methods: bank transfer, SEPA direct debit, PayPal, card, cash. Mind fees.

If payment does not come

1. Payment reminder friendly after the deadline.
2. Dunning letter (first, second) with a new deadline; with the dunning the customer is usually in default.
3. Default interest and flat fee (40 euros for business customers) can be claimed.
4. Payment order (online application at the dunning court) and, if necessary, enforcement.
5. Small amounts: weigh costs and effort. Debt collection companies charge fees. Stay factual, document everything and set clear deadlines.

Preventing

• Agree payment terms beforehand in writing (quote, order confirmation).
• For new customers check creditworthiness (information, experience) and take small steps.
• Issue the invoice promptly after service, with correct mandatory details (otherwise the customer can delay payment).
• Check open items weekly.
• When selling goods: retention of title and shipping only after payment received.
• Private customers with minors as sellers: clarify legal validity and liability, involve parents.

Notes

Default interest towards consumers is 5 percentage points, towards businesses 9 percentage points above the base rate. The default flat fee of 40 euros applies only between businesses. In disputes about the service a conversation often helps before dunning.

See also: Default interest and dunning, Writing invoices, Writing a quote, Payment services for minors