How to agree effective credit terms

Whether you're in business on your own, or part of a company, it's essential to protect your income - and one of the greatest areas of risk is when you extend a line of credit to a customer.

Remember, any time you carry out work, or provide goods or services, without taking payment upfront, you are effectively investing in your customers company.

That means you need to think like an investor and carefully consider several different factors, for instance:

  • How will you accept payment? Do you need cash on delivery, or can you wait until later?
  • What is the absolute longest you would be prepared to wait for payment?
  • How much can you risk - how much could you bear to lose if the client fails to pay?
  • What action are you prepared to take against late or non-payment?

It's not fun thinking about customers failing to pay you, but it's essential to admit to yourself that this can (and eventually, probably will) happen, and take action upfront to prepare for this eventuality.

State your terms

Once you have decided on your payment terms - from upfront deposits, to payment deadlines, to actions you will take on non-payment - make sure you clearly state them to your customers from the outset.

The earlier in the client relationship you state your terms, the more chance you have of enforcing them - it's no good waiting until you invoice and then putting everything in the small print (mainly because contrary to popular belief, terms included on invoices are not legally binding).

If you are uncertain about how to word your terms, speak to a business advisor or solicitor; there are specialists who can help self-employed individuals and small businesses with this, and although you're likely to have to pay, the cost can be equivalent to just one unpaid invoice in many cases.

Don't rely on clients to find your terms buried somewhere within your website - put them in your opening email with the customer, or include them as an attachment in an email, and ask the customer to clearly accept them.

You don't have to go so far as to send paper contracts in the post - simply typing their name in a reply email is enough to count as your customer digitally 'signing' your terms - and with it this easy to protect yourself, there's really no excuse for not doing it.  Or for those of you with a desire for something more formal EchoSign from Adobeprovides a low cost solution for supplying and signing terms, contracts or agreements by email.

Enforce your conditions

If you have clearly warned your customers of the rules in advance, they can really have no excuse for failing to pay - which again highlights why clear terms and conditions are a must if you're serious about your business.

Be as lenient as you're comfortable with, particularly for customers who have always paid well in the past, but once you realise that you are unlikely to get what you are owed, don't be afraid to enforce your terms.

Spelling it out in advance means you are able to apply the full range of penalties permitted under law - including penalty costs, statutory interest, and charging the debtor for any debt collection or legal fees.

This can allow your terms and conditions to help boost the amount you actually get paid, as well as your chances of success when pursuing recovery action, making them an all-round good idea.

General Terms

Unfortunately there is no one size fits all solution when it comes to terms of trade, as what might be suitable for one business may be wholly unsuitable for another.  Don’t be tempted to “borrow” terms from someone else, even if they are in the same industry.  They may well have “borrowed” the terms to begin with and you need to be sure you can rely on any terms if push comes to shove.

As a general rule, a good set of terms should cover the following points:


Possibly the most crucial of the terms, make it absolutely crystal clear when exactly you expect to be paid.  Clarity on this point from the outset will likely mean fewer problems in future.

Late payment

What will your company do in the event of late or non-payment?  If the client will be liable for legal and collection costs say so. Similarly if you will suspend or withdraw services this must be included.


Outline exactly what goods or services will be provided, how they will be delivered and the timeframe for delivery.


How can the agreement be terminated? Is it ad-hoc or for a fixed term?


What does your customer do if they have a query? How can these be raised and how will they be dealt with by your company?

The above list is by no means exhaustive and if in doubt we would always recommend you seek appropriate advice from a legal professional.

If you need help with your Terms and Conditions we can help put you in touch with experienced solicitors that can help you.  Just get in touch with us and we will be happy to help.

Over 150 Years Of Industry Experience

Our modest but highly skilled team has a combined total of over 150 years of experience in commercial credit management and B2B debt collection. From independent IT contractors to major film and TV publishers, Safe Collections has the knowledge and experience you need to get paid quickly and cost effectively.

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