Early payment discount clause

[TheCyclingProgrammer]

Early payment discount is for received payment before time.

As far as I'm concerned, "early payment" is pretty meaningless. I consider any payment made from the time of receiving the invoice up until the due date as being on time. Anything after the due date is late.

Payment terms should be based on cash flow and credit worthiness. Financial incentives to pay quickly should be strongly resisted as far as I'm concerned.

[Contreras]

I would insist on having this clause removed and tell them that you're quite happy with normal 30 day payment terms.

If I was starting out and cashflow was poor, I'd possibly consider it but personally I think it's cheeky - as if you should be so pleased to get paid on time that you would offer a discount. Paying on time should be normal!

Early payment discount is for received payment before time. Statutory interest would be due after the standard term as normal. Lot's of businesses do this and it's not all about cash flow. If you were contracting direct to a client with standard terms of 45/60/90 days and they could be encouraged to pay invoices within 10 days that's a big difference in exposure.

What's cheeky here is the agency tying it in to their own commercial arrangements with the client and apparently without regard to when the contractor is paid.

[TheCyclingProgrammer]

I would insist on having this clause removed and tell them that you're quite happy with normal 30 day payment terms.

If I was starting out and cashflow was poor, I'd possibly consider it but personally I think it's cheeky - as if you should be so pleased to get paid on time that you would offer a discount. Paying on time should be normal!

[Safe Collections]

Our advice is to negotiate the removal of this clause.

Whilst we appreciate the agency wanting to offer a prompt payment discount, that is for the benefit of their own cashflow and it seems somewhat unnecessary to force this on the contractor. After all the agency will no doubt be making a considerable saving if they can avoid invoice finance options...

Bit cheeky of the agency really...

[Contreras]

Since I agreed the day rate prior to knowing about this possible discount presumably I am entitled to ask to increase my rate or have the clause removed? Or put this down to experience and take the hit?

What the others said already. If you haven't signed the contract then it's not agreed.

I'd be happy with an early payment discount between MyCo and the agency but having it depend on arrangements between the agency/client sounds like a dispute waiting to happen.

[Taita]

Just like the others already said, i have personally never seen/heard of such clause. ClienCo - Agency contract is not legally bound to Agency - YourCo contract. Stuff like "discount being 'passed on' and automatically deducted from your payment" is nonsense. Take a look at the proposed Agency - YourCo contract and before signing demand an amendment to either remove the "early payment" clause or increase your rate accordingly. Be prepared for the agency to refuse, in which case we would be grateful if you can share the name of the said agency so we can be on the watch for such tulip.

Generally good advice. I would resist strongly if, as is suggested here, it was not discussed when the other Ts & Cs were laid out. For example, if it was just another clause in the written contract that was expected to slip past without query.

If the payee is contracted to pay within a stated period then that is the waiting time. If they intend to regularly ahead of time that is their lookout. Early payment is meaningless after the work has been done. Pre-payment is a completely different issue.

[sal]

Just like the others already said, i have personally never seen/heard of such clause. ClienCo - Agency contract is not legally bound to Agency - YourCo contract. Stuff like "discount being 'passed on' and automatically deducted from your payment" is nonsense. Take a look at the proposed Agency - YourCo contract and before signing demand an amendment to either remove the "early payment" clause or increase your rate accordingly. Be prepared for the agency to refuse, in which case we would be grateful if you can share the name of the said agency so we can be on the watch for such tulip.

[littleblue]

So what happens if the Client pays the Agency early, gets their discount, but then the Agency sits on their hands and pays your LTD one month late? Do you still have to absorb the discount?

I've never seen this before its very weird. The agency has already agreed a rate with you. IMO I'd say this discounting wasn't up for grabs, and they should either pay the agreed rate at all times, or they increase it to eliminate the 2% risk.

Unless you've already signed the contract, you are always entitled to ask to increase the rate or have the clause removed, but the agency can always say no.

The clause goes on to say the Agency will pay within 5 days of receipt of funds from the Client 'wherever possible'. So it does seem the Agency has a get out clause.

Even if the discount agreement is not in place between the Agency and Client, I am reluctant to agree and sign off on this. I'm uncertain if the Client imposes this discount on the Agency after I have signed the contract with the Agency will I be legally obliged to accept that discount.

I'm trying to get clarification from the Agent. I wanted to know if this was normal, which it appears not to be.

Thanks

[TheFaQQer]

Since I agreed the day rate prior to knowing about this possible discount presumably I am entitled to ask to increase my rate or have the clause removed? Or put this down to experience and take the hit?

You negotiate.

I've never seen it before, and I would try to get it removed or get an increase.

[CheeseSlice]

So what happens if the Client pays the Agency early, gets their discount, but then the Agency sits on their hands and pays your LTD one month late? Do you still have to absorb the discount?

I've never seen this before its very weird. The agency has already agreed a rate with you. IMO I'd say this discounting wasn't up for grabs, and they should either pay the agreed rate at all times, or they increase it to eliminate the 2% risk.

Unless you've already signed the contract, you are always entitled to ask to increase the rate or have the clause removed, but the agency can always say no.

[I just need to test it]

Never faced this. Might be worth finding out if an early payment agreement exists before worrying further.

[littleblue]

Hi,

This is my first contract and there is a clause in the contract that I would like to know if is standard or not.

The contract is between my Ltd and the Agency and that states if the Client has imposed an early payment discount on the Agency then that discount will be 'passed on' and automatically deducted from payments to my Ltd from the Agency.

Early payment is 'within 10 days' and discount is 'currently 2%'.

I understand there is a late-payment legislation, which this seems to be addressing, but this seems back to front to me.

Since I agreed the day rate prior to knowing about this possible discount presumably I am entitled to ask to increase my rate or have the clause removed? Or put this down to experience and take the hit?

Thanks