In times of economic uncertainty, your customers may be choosing not to pay for goods or services in a timely manner or at all. Late payments and non-payment by your customers will have an adverse effect on your continued operation.

Now is a good time to review your standard form contracts and, where appropriate, to amend them to include provisions that will increase the likelihood of receiving prompt payment.

  1. Due Date. Your contracts should require your customers to pay your invoices within a set number of days. Ideally, this period of time should be measured from the date on which you issue the applicable invoice, and the time period should be short.
  2. Method of Payment. Have a variety of payment methods and set them out in your contracts to make customers aware of them. A customer who is unable to pay by electronic funds transfer may be able to pay by credit card.
  3. Suspension for Non-payment. You may want to reserve the right, in your contracts, to suspend delivery, performance or provision of the goods and services under the contract, if your customer has defaulted in payment of one or more invoices for a set number of days. Suspension provisions may or may not include an obligation to give the customer notice of the default and an opportunity to cure.
  4. Reminders and Notices. Sometimes, your invoices and customer payments get ‘lost’ in the mail. A practice of sending your customers written reminders about outstanding invoices that have not been paid increases the likelihood of payment. Formal notices of default also provide an additional level of escalation. Consequently, your contract details should include a notice provision which at a minimum, will set out where to send formal communications about the contract.
  5. Dispute Resolution. Sometimes non-payment is indicative of a deeper problem. Having a process for dealing with disputes in an expeditious manner can help in those circumstances. The early resolution of any dispute removes any justification for non-payment.
  6. Termination. Sometimes, when a client is not paying for your goods and services, termination is the only option. Your standard form customer contracts should have a provision that allows you to terminate if you are not paid and if that breach is not cured within a set number of days following notice of default. A provision allowing termination for convenience (i.e., without the need to establish default) may also be helpful.
  7. Set-off. If the nature of your relationships with your customers may result in certain amounts being paid by you to your customers from time to time, your contracts should permit you to off-set any amounts owing to your customers against any amounts owing to you.

There are some additional practices that can help your business. Ensuring that your invoices are finalized and sent to your customers in a timely manner will help reduce your accounts receivables cycle. Also, for invoices for higher amounts than those usually expected by a customer, a telephone call in advance of delivery of the invoice may alleviate the customer’s concerns and reduce the possibility of a dispute.