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How to write payment terms [Guide for service providers]

Getting paid the lifeblood of any business. Cash-flow is used to pay the bills and wages. In this article, I share my secrets on how to get paid using the right payment terms.

1- Specify your charging method

There are two dominant models for service providers- time and materials and fixed pricing.

Time and materials

If you adopt the time and materials basis, you should include your daily or hourly rate for each team member who will work on the project. You don't need to specify their names, instead, you could refer to it by job title. You may wish for the weekend and overtime rates to incur higher pricing.

Fixed pricing

If you adopt fixed pricing, it is worthwhile spending time working out what is included and excluded from your scope of works.

2- Avoid scope creep by writing a clear Statement of Works

If your customer asks for additional work beyond what you originally agreed to, this empowers you to negotiate how much it will cost and the timeframes for delivery.

A scope helps you enforce strong business boundaries. You can prevent rush-jobs, midnight and weekend calls and work you don't get paid for.

3- Get paid for your out of pocket expenses

Don't let out of pocket expenses eat into our bottom line. A well-written clause can save you money.

You'll want to specify what is classified as out of pocket project expenses, when and how the customer needs to pay them to you.

4- Give yourself a pay-rise

The cost of business rises each year and so does your experience. So why settle? Include a clause which automatically raises your rates annually. This removes the awkwardness of negotiating the increase. Go on, you deserve it.

5- Be clear on when you need to be paid

Payment upfront and progress payments help to ensure you get paid. It gives you an opportunity to hold off on work until the customer pays your bill.

Pro tip: Set when they need to pay you (eg- upfront before work starts) or by a certain time such as 7 days from an invoice or weekly/monthly/annually.

6- Get paid automatically

Instead of asking for money, get paid automatically by recurring payments or instalments. This is where a direct debit agreement comes in handy.

Happy to help

Should you have any questions, please do not hesitate to contact us on (03) 8691 3128.

Warm regards,

The Legal Enablers Team

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