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If you’re a small business owner or freelancer, managing your payments and cash flow is an essential part of keeping your business afloat. One of the best ways to protect your cash flow is to create a payment policy that outlines how and when you’re paid for your work and services.
Your business payment terms set expectations for your clients and ensure you’re paid on time. Read on for common payment policies and examples that will help you manage your income while protecting your customer relationships.
What is a payment policy?
Your payment terms are conditions that outline how you receive payment for your work and services. This includes details on:
How clients should pay you
Methods of payment you accept
Payment deadline(s)
Conditions and terms around receiving funds, like late fees
Your payment policy is separate from other policies, such as a refund policy and cancellation policy, but they work together to protect your business. Remember, you have control of what terms work best for you. Your payment policy may look different depending on the services you provide, your chosen industry, and where you’re located.
Why are payment terms important?
Clear payment terms are essential for strong professional relationships. They help you build trust with your clients by giving clarity on how they can pay for your services. Unclear payment policies can confuse people and complicate the payment process by creating a back-and-forth about payment methods or timing.
A clear payment policy also protects your time and income. Many freelancers and small business owners can find building predictable income challenging, especially in the earlier stages of building a business. Your payment terms can help you establish payment and payout schedules that give you stable cash flow and reduce the stress of income gaps.
Common types of payment terms
Here are some of the most common types of payment terms used by freelancers and business owners. Note that some terms and phrases may differ depending on the industry or service you work in.
On receipt: Payment is expected immediately after the client gets an invoice or you complete your project work.
Net payment: Payment is due a set amount of days after sending an invoice or completion of a project. This can be any number of days that work for you, such as Net 7, Net 14, Net 30, or more.
Upfront payment: In this type of policy, complete payment is required beforehand for the work to begin.
Milestone payments: Payments come due at various stages of a project. This might involve deposits, such as 50% upfront and the remaining balance upon completion, or a split along other checkpoints in a project.
Recurring payments or retainer: These are repeated payments for ongoing projects or services, like consulting work. Payment deadlines are predictable, like monthly, quarterly, or annually.
Learn how to create and send invoices on Squarespace
Payment policy examples
It’s common to place payment terms in the Notes or Terms sections of an invoice. If you establish contracts with clients, you should also include your payment policy in your contract terms. Some people choose to list their terms in their website’s FAQ section.
Here are two payment terms examples that you can adapt to a range of businesses. Set your terms to what’s common for your niche and your clients’ needs.
Note: Our payment terms examples are starting points for educational purposes. This is not and official payment policy or legal advice. Refer to local laws or regulations for more specific guidance on policy language, or consult with a legal professional for clarity.
Payment policies for a service-based business
Net 30 payment: This is an example of a policy for a wholesale materials company that outlines its payment policy on the invoices sent to clients.
“Our payment terms are 30 days from purchase or receipt of invoice. Please refer to your invoice for company bank details. Payments are to be made by wire transfer. Late or missed payments will be subject to a 25% administrative fee, due on receipt of revised invoice.”
Milestone payment: In this example, an event caterer breaks payments into a 50% deposit payment and a 50% final balance payment due one week before a booked event. Their terms would be included in the event proposal, on any invoices, and on their business website.
“We require a 50% deposit to secure your booking. Full payment details, including accepted payment methods, can be found in your booking proposal and event outline document. The remaining 50% balance is due no later than one week prior to your event date. Please ensure timely payment to avoid delays or cancellations of your requested booking.”
Examples for freelancers
Retainer: Here’s how a freelance consultant working with clients on a monthly retainer might phrase a payment policy. These terms would be detailed in a 12-month contract provided to clients and on invoices sent each month.
“Thank you for booking my services. Payment is due on the 1st of each month for services completed the month prior. Please follow the payment link below for prompt payment. Late payments will be subject to a 20% late fee, detailed in a revised invoice.”
Due on receipt: This is a payment policy template for a therapist or coach taking payment due on receipt of invoice. Terms would be included in their signed client agreements and on sent invoices.
“Payment is due upon receipt of invoice via wire transfer or direct deposit. Please refer to our contract for up-to-date payment details. Note that missed sessions will still incur full fees, due on receipt of invoice.”
Best practices for managing payment policies
Once you have an idea of what your policy might look like, there are a few factors to consider before using it professionally. Here are some best practices and common challenges to take note of when enforcing and using your policy for your business.
Stay on top of payment tracking and reminders
When running a business, it’s easy to forget when invoices and payments are due. Create systems to help you monitor invoice due dates for easy follow ups and accounting. You can do this by setting project milestones for invoice send and due dates in your project tracking tool or adding those dates to your work calendar.
You can also automate the process with an invoicing tool that includes options to create recurring invoices or schedule invoices in advance. Tools like Squarespace Invoicing include these features and can help you to manage invoices, reminders, and payments all from one place.
Prevent and address late payments
Late payments can disrupt your cash flow and harm your business. If a payment is overdue, it’s important to follow up quickly, professionally, and clearly. Reach out with a reminder and ask when they expect to make their payment. You can reference your late payment policy or state that you’ll pause work until payment is received.
Remember, your payment terms only work as far as you enforce them. You may find it useful to charge late fees for missed payments and include this in your payment policy. If it makes sense for your business, you could also provide incentives for customers who pay early, like a small percentage discount or added service.
Be aware of industry-specific and local nuances
Invoicing laws and regulations on payment timeframes may differ from location to location, even more so if you’re working with clients in other regions or countries. Be aware of any local regulations around invoicing and payment timelines, as you may have to adjust terms based on your geography.
If you’re based in the United States, you may want to research whether there are local protections for you, like New York State’s Freelance Isn't Free Act. Seek legal advice and talk to others in your field to find out what’s typical practice.
Decide when to negotiate on your policy
Sometimes your payment terms may not work for specific clients, particularly if you’re working with established businesses who have their own invoicing and payment procedures.
Decide whether you’re open to negotiating terms of your policies on a case-by-case-basis. Remember, it’s important to strike a balance between maintaining client relationships and your cash flow needs. With any changes, make sure you document all negotiated terms clearly in writing and have partners agree to terms ahead of any purchases.
Use payment timing to help your cash flow
Being a service provider means your income and clients can be unpredictable. But you can organize your payment policy to allow for a more stable cash flow.
This could mean things like:
Taking deposits for work to ensure you have funds prior to completion of a project
Asking for payment upfront if you know projects will likely be completed later in the future
Using shorter payment timeframes to avoid delayed cash flow
Your payment tool may also be helpful for this. For example, Squarespace Payments offers Instant Payouts, which means you can access the payments in your account in minutes. That can help you control how much you pull from your earnings and when, or give you access to your payouts quickly for urgent business needs.