How to negotiate better payment terms with a new large client

Landing a contract with a large, well-known company is a huge win for any small business or freelancer. It brings credibility, predictable revenue, and a flagship name for your portfolio. But the excitement can quickly fade when you receive their standard supplier contract and see the payment terms: 60, 90, or even 120 days. For a small supplier, these terms can be a cash flow nightmare, forcing you to act as an unwilling, interest-free lender to a corporate giant. This article explains why this happens and, most importantly, provides a practical, UK-focused guide on how to realistically negotiate for better payment terms.

Why Long Payment Terms Are a Cash Flow Killer

Before diving into negotiation tactics, it’s crucial to understand why 30-day terms are the gold standard for small businesses, and why 60 or 90 days can be so damaging. It’s not just an inconvenience; it’s a direct threat to your financial stability.

• Working Capital Squeeze: You have to pay your own bills—staff salaries, software subscriptions, rent, suppliers—long before you see a penny from your large client. This cash gap, known as the working capital cycle, has to be funded from somewhere, either from your profits or from expensive borrowing.
• Stunted Growth: When your cash is tied up in receivables, you can't invest it back into the business. You might have to turn down other projects, delay hiring a new team member, or postpone essential equipment upgrades simply because you don’t have the funds available.
• Increased Risk: The longer you wait to be paid, the more risk you carry. The client's financial situation could change, your key contact could leave, or your invoice could simply get lost in a complex accounts payable department. A 90-day-old debt feels much riskier than a 30-day-old one.
• The VAT Trap: If you're VAT-registered on the standard accounting scheme, you typically have to pay the VAT to HMRC for the quarter in which you issued the invoice, regardless of whether your client has paid you. On a large invoice, this can mean you’re paying out thousands of pounds of your own money months before you receive it from the client.

Understanding the Other Side: Why Do Big Companies Do This?

It’s rarely personal. Large organisations push for long payment terms for one primary reason: to optimise their own working capital. By delaying payments to their suppliers, they keep cash in their own bank account for longer. This cash can be used to fund operations, make short-term investments, or simply improve the look of their balance sheet.

They have entire procurement departments dedicated to negotiating favourable terms. For them, extending payment terms from 30 to 60 days across thousands of suppliers can be worth millions in improved cash flow. They have immense bargaining power and rely on the fact that most small suppliers are too eager for the business or too intimidated to push back. Knowing this helps you approach the negotiation not as a plea for help, but as a commercial discussion between two businesses.

Preparation is 90% of the Battle

You cannot win a negotiation on the fly. Walking into a discussion about payment terms without being prepared is a recipe for being railroaded into accepting their standard terms. Before you even speak to the client, do your homework.

1. Know Your Numbers

What is your absolute breaking point? Calculate your project costs, your monthly overheads, and the impact of waiting 30, 60, and 90 days for payment.

• Best Case: 14 or 30 days. This is your opening position.
• Acceptable Case: What can you live with? Maybe 45 days, or 60 days with a deposit upfront.
• Walk-Away Point: At what point does the contract become unprofitable or too risky for your business's health? If 90 days means you have to take out a loan to cover costs, is the project's profit margin high enough to justify it? Be prepared to walk away if the terms are simply unworkable.

2. Research Their Payment Practices

In the UK, you have access to valuable information.

• Prompt Payment Code (PPC): Is the company a signatory to the UK's Prompt Payment Code? Signatories have committed to paying 95% of invoices from small businesses (those with fewer than 50 employees) within 30 days. If they are a signatory, you can politely use this as leverage. You can check the signatory list on the official PPC website.
• Payment Practice Reporting: Large UK companies are legally required to publish reports twice a year on their payment practices and performance. You can search for these reports on the GOV.UK website. This data will show you their average payment time and the percentage of invoices not paid within agreed terms. If their report says they pay 80% of invoices within 30 days, it gives you a powerful piece of evidence to counter their claim that "everyone is on 90 days".

3. Identify Your Champion

Often, the person who wants to hire you (the marketing manager, the head of IT) is not the person who sets the payment terms (the procurement or finance department). Your contact who needs your service is your internal champion. They have a problem that you can solve. Their priority is getting the project done well and on time, not optimising the company's payment cycles. Have the conversation with them first, before you're handed over to procurement.

Proven Strategies for Negotiating Shorter Terms

Once you’re prepared, you can open the discussion. The key is to be collaborative, not confrontational. Frame your proposals as mutually beneficial ways to ensure a successful partnership.

Strategy 1: The Upfront Deposit

This is one of the most effective ways to mitigate your risk. For any significant project, especially one involving custom work or high initial costs, asking for a deposit is a perfectly reasonable commercial request.

• How to frame it: "To secure the necessary resources and commence work on the project, our standard policy is to request a 50% upfront payment, with the final 50% payable upon completion. This ensures we can dedicate our team fully to your project from day one."
• Why it works: It immediately solves half of your cash flow problem. It also demonstrates that the client is serious and financially committed to the project. If a client baulks at a reasonable deposit, it can be a red flag.

Strategy 2: Milestone or Phased Payments

Instead of one single payment 90 days after project completion, break the project down into distinct phases and invoice upon the completion of each one.

• How to frame it: "For a project of this duration, we find it works best to align payments with key deliverables. We propose the following payment schedule: 25% on signing, 25% on delivery of the first draft, 25% on user acceptance testing, and the final 25% on project launch. This keeps everything aligned and ensures a smooth process for both sides."
• Why it works: It breaks up one huge, risky payment into several smaller, more manageable ones. It keeps cash flowing into your business throughout the project lifecycle. For the client, it feels fair as they are paying for tangible progress.

Strategy 3: Offer an Early Payment Discount

This clever strategy reframes your request as a benefit for them. You're not asking for a favour; you're offering them a way to save money.

• How to frame it: State your standard terms on the invoice as "Net 30". Then, add a clear note: "We offer a 2% discount for payment received within 10 days."
• Why it works: A 2% discount might seem small, but on a £50,000 invoice, that's a £1,000 saving for the client. The client's finance department may be incentivised to take advantage of such discounts. It costs you a little margin, but getting £49,000 in 10 days is often far better than getting £50,000 in 90 days. Calculate if the cost of the discount is less than the cost of financing the debt for three months. Usually, it is.

Comparison of Negotiation Tactics

Tactic	How It Works	Best For...	Potential Client Objection
Upfront Deposit	Request 25-50% of the total fee before work begins.	Custom projects, new clients, or work with high initial material costs.	"Our policy is to never pay for work that hasn't been delivered."
Milestone Payments	Break down the project and invoice at the completion of each phase.	Long-term projects (3+ months) with clear, definable stages.	"It's too much administrative overhead for our AP department to process multiple invoices."
Early Payment Discount	Offer a 1-2% discount if the invoice is paid within 10-14 days.	Clients with healthy cash flow who are motivated by cost savings.	"Our payment system is automated for 60 days; we can't process exceptions."
"Split the Difference"	If they propose 60 days, counter with 45.	When you have some leverage but don't want to seem inflexible.	"We need to be consistent with all our suppliers."

What If They Say No? Your Fallback Positions

You’ve made your case brilliantly, but the procurement manager won’t budge. Their policy is 90 days, end of story. Do you walk away? Maybe. But first, consider these fallbacks.

• Negotiate on Price: If they are forcing you to be their lender, you should be compensated for it. Respond with: "Thank you for clarifying the payment terms. Given that 90-day terms require us to finance the project's costs for an extended period, we would need to revise our project quote upwards by 3-5% to accommodate the financing costs. Alternatively, we are happy to hold the original price on our standard 30-day terms." This makes the cost of their policy explicit.
• Insist on Your Right to Charge Interest: Ensure your contract explicitly states that you will exercise your statutory right to charge interest on late payments under the Late Payment of Commercial Debts (Interest) Act 1998. This means that from day 91, you are legally entitled to charge interest at 8% above the Bank of England base rate, plus a fixed compensation sum (£40, £70 or £100 depending on the debt size). This shows you are serious and gives you a powerful tool if they are late on top of their already long terms.
• Walk Away: Sometimes, the best decision is to walk away. A prestigious client name isn't worth it if the contract will bankrupt your business. Politely decline, stating that the payment terms are unfortunately unworkable for you as a small supplier. This maintains a professional relationship and, occasionally, can even prompt them to reconsider.

Good Terms Are Only Half the Story

Even if you successfully negotiate 30-day terms, your work isn't done. A large company’s accounts payable department can be a black hole. To get paid on time, you need a bulletproof internal process.

Ensure your invoices are perfect: they must include a purchase order (PO) number if required, be addressed to the correct legal entity, and sent to the specific person or email address stipulated by their finance team. A tiny mistake is often used as a reason to reject an invoice and reset the payment clock.

Following up is equally important. A polite reminder a few days before the due date, and a firm chase the day after it becomes overdue, is essential. This is where many small businesses fall down; they are too busy doing the client work to manage the admin. Using a tool to automate this process can be a game-changer. An application like InvoiceReminder connects to your accounting software (like Xero or QuickBooks) and automatically sends out scheduled email reminders for you, making sure no overdue invoice is forgotten.

Automate Your Credit Control

Winning better payment terms is a crucial first step, but consistent follow-up is what actually brings the cash in. Manually chasing invoices is time-consuming and easy to forget when you're focused on delivering for your clients.

InvoiceReminder is designed for UK small businesses, freelancers, and accountants who want to put their credit control on autopilot. It connects directly with Xero, FreeAgent, Sage, and QuickBooks to automatically chase your overdue invoices. You can set up a sequence of reminders, from a gentle nudge to a final notice, that are sent according to your rules. This helps you get paid faster, improves your cash flow, and frees you up to focus on running your business. The Free plan currently includes unlimited email reminders at no cost. InvoiceReminder is built by the team behind WeCovr, a UK company authorised and regulated by the Financial Conduct Authority in its capacity arranging insurance policies.

Frequently asked questions

Is it legal for a large company to insist on 90-day payment terms?

For business-to-business contracts in the UK, payment terms are a matter of commercial agreement. If you sign a contract that specifies 90-day terms, it is legally binding. The statutory default of 30 days (under the Late Payment Act) only applies if no other payment period has been agreed in the contract.

What is the UK Prompt Payment Code?

The Prompt Payment Code (PPC) is a voluntary code of practice. Signatories pledge to uphold best practices in payment, which includes a commitment to pay 95% of their small business suppliers (those with fewer than 50 employees) within 30 days. You can check if a company is a signatory and use it as a point of leverage in your negotiations.

Can I charge interest on a late invoice if the payment terms were 90 days?

Yes. Your statutory right to charge interest and claim fixed compensation applies once the agreed payment date has passed. If the agreed terms are 90 days, you can start charging interest from day 91 onwards, as per the Late Payment of Commercial Debts (Interest) Act 1998.

What's a realistic discount to offer for early payment?

A typical early payment discount is between 1% and 2%. For example, "2% 10, Net 30" means you offer a 2% discount if paid in 10 days, otherwise the full amount is due in 30 days. Always calculate the cost against the cash flow benefit; offering too high a discount can erase your profit margin.

My client uses a supplier portal for invoices. Does this change how I negotiate?

The negotiation should happen before you are onboarded to their portal and start work. The portal is a tool for processing invoices, not for agreeing commercial terms. Once terms are agreed, you must follow their portal process exactly, as any deviation (like a missing PO number) can lead to payment delays.

I've already started work on 60-day terms. Is it too late to change them?

Changing terms mid-project is very difficult and not recommended as it could be seen as a breach of contract. However, you can use the experience to negotiate better terms for the next phase of work or for your contract renewal. Raise the issue in a project review, explaining the impact on your ability to serve them, and propose new terms for all future work.