Payment terms - what's reasonable in this situation?

[Logops]

Hi everybody,

I'm a consultant - technically - but no real difference and this forum is great.

Case study: I am an independent consultant and have set up as a Limited company. A larger UK consultancy hires me to support them on a consultancy project. This will be for 10 to 15 days work (at a low rate) spread over a 6-8 week period; time sheets and a couple of interim reports are provided throughout, so effort is visible to all. It is our first business relationship. The larger consultancy tells me they pay at 45 days.

Is 45 days reasonable?

I had thought 30 days to be normal, but then I remembered many independents request payment upon receipt of invoice.

Perhaps being a Limited company stretches the payment terms here (although the larger firm knows I am one guy).

What do you think is fair and what should the independent consultant push for without being unreasonable?


Thank you for any advice here - sometimes it's the seemingly simple questions that have one stumped.

Kind regards

[northernladuk]

First off everyone will scream no, go for 7 days forgetting you are more or less direct with a consultancy and not with an agent.

The only thing to watch out with payment terms is the amount of risk you open yourself up to. The longer the payment term the more risk. If you are 100% sure the company will pay and won't go bump then it doesn't really matter and becomes personal choice. I think 30 days from a consultancy isn't unreasonable at all. I was on 45 and negotiated it down and never had a problem. If you are risk averse or the consultancies credit history is a reason for doubt try and push for less. It's possible their client has terms up up to 90 days so they will be taking on the risk. Don't forget you are in a B2B agreement so 30 days, whilst common, is not standard.

One thing it could be worth doing as highlighted in a recent thread is put a clause in the contract stating that payment is key to the contract and late payment will result in termination and fees for recovery being applied. Also agree and document an percentage charge for late payment. Standard is 4%. I wouldn't rock the boat to get these in but if they aren't too bothered it might help should the worst happen.

[d000hg]

I'd push for 30 days - your company has its own standard terms - but it shouldn't be a big deal deal really.

I can't remember the name, but when dealing with POs there are companies who will "buy" the PO and pay you upfront, then chase the client for the money when it's due, for a small cut (based on how risky they think the client is). Not really relevant here but interesting to know about.

[Old Greg]

1. 45 days following weekly invoicing?
2. 45 days following monthly invoicing?
3. 45 days following completion of 6 to 8 week contract?

There is a massive difference. I would be OK with number 1, but I normally work on monthly invoicing + 30 days.

If you must accept number 2 or there's no contract, then you need to consider your position for cashflow (you ought to be able to manage this), and also risk of non-payment. It sounds like there is little risk that they can't pay. What if they won't pay. Is payment dependent on timesheets being signed? What if the client decides not to sign the timesheet? I would push for weekly timesheets, even if only invoicing monthly. It sounds a bit weird, but it means that you have reduced one element of the risk of non-payment as client reluctance to sign timesheet appears early.

If they want number 3, they could sod off IMO.

[tarbera]

If low rate

Hi everybody,

I'm a consultant - technically - but no real difference and this forum is great.

Case study: I am an independent consultant and have set up as a Limited company. A larger UK consultancy hires me to support them on a consultancy project. This will be for 10 to 15 days work (at a low rate) spread over a 6-8 week period; time sheets and a couple of interim reports are provided throughout, so effort is visible to all. It is our first business relationship. The larger consultancy tells me they pay at 45 days.

Is 45 days reasonable?

I had thought 30 days to be normal, but then I remembered many independents request payment upon receipt of invoice.

Perhaps being a Limited company stretches the payment terms here (although the larger firm knows I am one guy).

What do you think is fair and what should the independent consultant push for without being unreasonable?


Thank you for any advice here - sometimes it's the seemingly simple questions that have one stumped.

Kind regards

Remember big co is hiring you out at say £1500 a day, so making a good markup on you, play hardball and ask for 7 days or extra £50 a day for 45 day terms

Ive had 90 days EOM in the past

[TheFaQQer]

Is 45 days reasonable?

Yes, but it's up to you as a business to agree the terms.

My current direct client has monthly invoicing and 60 day terms, which means that it's 90 days before the money hits the account. Would I like a shorter payment period - yes, absolutely. In reality, the contract says 60 days, the PO says 30 days and so they pay 30 days from the date on the invoice - I sent in an invoice late, expecting to wait 30 days, but it was paid within the week because of the date on the invoice

Judge the risk - if the client is likely to disappear, then you need to be on shorter payment terms than 45 days. You also need to work out whether this impact on cashflow is significant to your business even if they pay on time - can you afford to leave it that long between when you work and when you get paid?

I'd try to negotiate to 30 days, but it also depends on how often you invoice - I've gone 28 day payment terms on weekly invoicing, which was great, whereas the first months on this gig where they stuck to 60 day terms on monthly invoicing wasn't too good.

[Safe Collections]

Some excellent advice from NLUK as always The only slight alteration we would make is that this:

Also agree and document an percentage charge for late payment. Standard is 4%. I wouldn't rock the boat to get these in but if they aren't too bothered it might help should the worst happen.

Standard rate under UK law is 8% plus the BoE base rate, so 8.5% at the moment and you don't actually need to include a clause relating to late payment as the legislation covers you irrespective

[Contreras]

What do you think is fair and what should the independent consultant push for without being unreasonable?

For any size company 30 days is not unreasonable payment terms and it is the statutory period by law if none is specified in the contract. An independent consultant would not unreasonable to ask for less, IMHO, but unrealistic to expect it.

The risk of late payment will be factored into your rate. When you quote a rate always do so stating the payment terms (including the billing cycle) that would apply, then if different terms are offered you have room to negotiate.

[TheCyclingProgrammer]

All you can do is negotiate. It's not unreasonable as long as you think the client is good for 45 days credit. You can credit check them if you want to be sure.

My standard payment terms are 14 days and my current client asked for 30 as it's something they have as standard across all suppliers. I said no problem, but can I bill you fortnightly (I'd normally bill monthly). This was fine.

Long payment terms can be a pain when your starting out and cashflow isn't great but after a year in or so you should always be trying to maintain a decent level or cashflow so things like this don't affect you too much.

[borderreiver]

I generally try for 14 days, which is the standard for MyCo, and I think it's reasonable if the client hasn't got the best cashflow. But 30 is normal.