Setting minimum viable payment terms before you take on a client

When you’re running a small business or working as a freelancer, the temptation to say "yes" to every piece of work is huge. The thrill of winning a new client can often overshadow the small print, especially the payment terms. But accepting a project with unworkable terms—like 90 or 120 days—isn't a win. It’s a cash flow trap that can put your entire business at risk. This article provides a practical framework for defining your "minimum viable payment terms" and building a simple screening process, so you never have to finance a client's business out of your own pocket again.

Why "Any Work is Good Work" is a Dangerous Myth for Cash Flow

It’s easy to look at a £10,000 project and see the revenue. What’s harder to see is the cost of waiting three months to get paid. Long payment terms are not just an inconvenience; they are a direct drain on your working capital. You are effectively giving your client an interest-free loan.

Consider a simple scenario: you land a £5,000 web design project. To deliver it, you need to pay a freelance copywriter £1,000 and spend £200 on stock imagery. You also need to pay yourself enough to cover your own bills. If the client’s terms are "Net 90," you will have to cover all those costs upfront and wait a full quarter of the year before you see a single penny.

For a small business, this can be catastrophic. If you have two or three clients on similar terms, your bank account can be drained in a matter of weeks, even while you are technically profitable on paper. Profit doesn't pay your rent, your staff, or your suppliers. Cash does. This is why establishing clear boundaries before you start work is one of the most important things you can do to protect your business.

Defining Your "Minimum Viable Payment Terms" (MVPT)

Your ideal payment terms might be 7 or 14 days. But in the real world, you'll need to negotiate, especially with larger corporate clients. This is where your Minimum Viable Payment Terms (MVPT) come in. This isn't your opening offer; it's your absolute red line—the longest you can wait for payment without causing significant harm to your business's financial health.

Defining your MVPT is a simple, three-step process.

Step 1: Calculate Your Project "Cost of Carry"

Before you can know how long you can afford to wait, you need to know how much cash you'll be putting out the door to complete the work. This is your "cost of carry."

• Direct Costs: List every direct expense associated with the project. This includes subcontractors, materials, software subscriptions, travel, and any other hard costs.
• Your Own Salary/Drawings: Don't forget to pay yourself. Calculate the portion of your essential monthly drawings that this project needs to cover. If a project takes a month, it needs to cover a month's worth of your basic financial needs.
• Overheads: A portion of your fixed overheads (rent, insurance, utilities) is supported by this project. While you have to pay these anyway, understanding the project's contribution is key.

Example: For a £12,000 consulting project that will take two months:

• Subcontractor fees: £3,000
• Software licences: £150
• Your essential salary for two months: £4,000
• Total Cost of Carry: £7,150

On 60-day terms (from the end of the project), you would be financing that £7,150 for a total of four months. Can your business afford that?

Step 2: Assess Your Cash Buffer

Your ability to tolerate longer payment terms is directly proportional to your cash reserves. Look at your business bank account and calculate your runway.

• Calculate Monthly Burn: Add up all your average monthly business expenses, including your own salary.
• Determine Your Buffer: Divide your current cash balance by your monthly burn. This tells you how many months you could survive with zero income.

A business with a 6-month cash buffer has the luxury of considering a 60-day payment term on a small project. A business with a 1-month buffer does not. Your MVPT must reflect this reality.

Step 3: Set Your Red Lines

Now, combine your cost of carry analysis and your cash buffer to define your non-negotiables. These are your red lines.

Your MVPT might look something like this:

• Maximum Term: "We cannot accept payment terms longer than 60 calendar days from the invoice date for any project."
• Deposit for Large Projects: "For any project with a total value over £5,000, we require a 50% upfront deposit to secure the work, with the final 50% due on completion."
• Phased Payments for Long Projects: "For projects lasting longer than one month, we will invoice monthly for work completed."
• Absolute No: "We do not, under any circumstances, accept 'Pay When Paid' clauses."

Write these down. They are the foundation of your financial screening process.

Building a Simple Client Screening Process

Your MVPT is useless if it only lives in a spreadsheet. You need to build a process around it to screen new clients effectively. The key is to address payment terms early and professionally.

The Pre-Proposal Conversation

Don't wait until you're sending the first invoice to discuss payment. By then, it's too late. The best time to raise the topic is during the initial sales or scoping phase, before you've invested hours in writing a detailed proposal.

You can frame it as a simple point of alignment:

"This sounds like a great fit. Just so we're aligned on the commercial side before we proceed, could you let me know what your organisation's standard payment terms are for new suppliers? Our standard terms are 14 days from the invoice date."

This simple question does two things: it signals your professionalism and forces the conversation out into the open immediately.

Reading the Supplier Onboarding Paperwork

If you're dealing with a large company, you will almost certainly be sent a "New Supplier Form" or a similar document pack. This is where their standard terms are buried. Read it carefully. Do not just sign it to get the Purchase Order (PO) number.

Look specifically for:

• Payment Terms: Is it "Net 30", "Net 60", or something longer? Does it say "60 days from end of month," which can easily turn into 90 days in practice?
• Payment Run Dates: Some companies only process payments once a month. If you miss the cut-off by one day, you could be waiting an extra 30 days.
• "Pay When Paid" Clauses: This is a major red flag. It means the client will only pay you after their client pays them. This transfers all their project risk onto you and can lead to indefinite delays. Reject these clauses outright.
• PO Requirements: Most large firms operate a "No PO, No Pay" policy. Ensure you know how to get a PO number and that it must be on your invoice.

Using a Simple Traffic Light System

Once you have the client's proposed terms, you can use a simple traffic light system based on your MVPT.

• GREEN: The client accepts your standard terms (e.g., 14 or 30 days) or their terms are well within your MVPT. Proceed with confidence.
• AMBER: The client proposes terms that are longer than your ideal but still within your MVPT (e.g., 45 or 60 days). Time to negotiate. Can the project's profit margin justify the cash flow strain? Can you ask for a deposit to mitigate the risk? This is a business decision.
• RED: The client insists on terms that cross your red lines (e.g., 90+ days, Pay When Paid). Politely decline the work. It might hurt to turn down revenue, but it's better than winning a project that could sink your business.

How to Negotiate Better Payment Terms (Without Losing the Client)

Negotiating payment terms doesn't have to be a confrontation. If you approach it professionally and have a clear rationale, you can often find a middle ground.

Technique 1: Justify Your Position Calmly

Instead of making a demand, explain your situation. Most people are reasonable.

"Thanks for sending this over. I see your standard terms are 90 days. As a small business, managing our cash flow is critical to ensuring we can dedicate the right resources to your project and deliver the best possible work. Our standard terms are 30 days to allow us to do that. Would there be any flexibility to meet us closer to that?"

Technique 2: Offer a "Prompt Payment Discount"

This is a powerful technique that reframes the negotiation from a negative (your demand) to a positive (their opportunity).

"Our proposal is based on your standard 60-day terms. However, we do offer a 2% discount on the total project fee for clients who can process payment within 14 days. Is that something you'd like to take advantage of?"

This incentivises their accounts department to prioritise your invoice and demonstrates your flexibility.

Technique 3: Propose Staged Payments or a Deposit

For larger or longer projects, breaking up the payments is the most effective way to de-risk the engagement for both parties. It's standard practice and shows you are a serious business.

"For a project of this scope, we typically operate on a phased payment schedule to help both parties manage cash flow. We propose a 50% deposit on commencement to book the resources, and the final 50% upon completion. How does that sound?"

Technique 4: Know When to Walk Away

If the client won't budge on a term that crosses your red line, you must be prepared to walk away. This is the hardest but most important part of the process. Be polite, professional, and leave the door open for the future.

"Thank you for clarifying. Unfortunately, 120-day terms are not workable for our business model at this time. We really appreciate the opportunity and would love to be considered for future projects if there's ever flexibility on the payment schedule. We wish you the best of luck with the project."

The Legal Backstop: Your Rights Under UK Law

Even with the best screening process, you will eventually face a late payment. It’s crucial to know your rights under UK law, as this knowledge strengthens your negotiating position and provides a clear path for escalation.

The key piece of legislation is the Late Payment of Commercial Debts (Interest) Act 1998. This applies to business-to-business transactions and grants you significant rights.

• Default Payment Period: If your contract does not specify a payment date, the law says the payment is late 30 days after you deliver the goods/service or you send your invoice, whichever is later.
• Contractual Terms: You and your client can agree to longer terms, but for most B2B contracts, anything over 60 days must not be "grossly unfair" to the supplier. A large, powerful client forcing 120-day terms on a small supplier could potentially be challenged on this basis.
• Statutory Interest: For overdue invoices, you have the legal right to claim interest. The rate is 8% plus the Bank of England's base rate. The base rate can change, so you should always check the current figure on the Bank of England's website when calculating it.
• Fixed Sum Compensation: In addition to interest, you can also claim a one-off fixed compensation payment to cover the cost of recovery. The amount depends on the size of the debt.

Invoice Value (excl. VAT)	Fixed Compensation
Up to £999.99	£40
£1,000 to £9,999.99	£70
£10,000 or more	£100

Simply including a sentence in your terms and conditions like, "We reserve the right to claim statutory interest and compensation for late payment under the Late Payment of Commercial Debts (Interest) Act 1998," can be a powerful deterrent.

Automating Your Process to Enforce Your Terms

Agreeing on good terms is only half the battle. You also need a robust process to enforce them. Manually tracking due dates, drafting follow-up emails, and logging every communication is incredibly time-consuming and prone to human error. Invoices get missed, follow-ups are inconsistent, and you end up spending more time being an administrator than running your business.

This is where automation becomes invaluable. A system like InvoiceReminder integrates directly with your accounting software (such as Xero, QuickBooks, Sage, or FreeAgent) to automate the entire chasing process. You define your escalation rules once—for example, a polite reminder one day after the due date, a firmer follow-up a week later, and a final notice with late payment charges at 14 days—and the software executes them flawlessly for every invoice. This ensures consistency, professionalism, and frees you from the manual grind of credit control.

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Frequently Asked Questions

Can a large company legally force me to accept 90-day terms?

They can propose it as part of their standard contract, but you are not legally obligated to accept it. UK law, specifically the Late Payment of Commercial Debts Regulations, suggests that payment terms longer than 60 days must be "expressly agreed" and not "grossly unfair" to the supplier. You always have the right to negotiate or, if the terms are unworkable for your business, to decline the work.

What is a "Pay When Paid" clause and why is it so bad?

A "Pay When Paid" clause means your client will only pay your invoice after they themselves have been paid by their end client. This is extremely risky for a small business as it transfers all of your client's credit risk to you. It creates an indefinite payment timeline and makes your cash flow entirely unpredictable. These clauses should be avoided wherever possible.

Is it rude to ask for a deposit before starting work?

Not at all. For freelancers and small businesses, especially when undertaking large or bespoke projects, asking for a deposit is a standard and professional business practice. It secures your time, covers initial costs, and ensures the client is serious. You can frame it as the step that "officially books the project into our schedule." 30-50% is a common amount.

What's the difference between "30 days" and "Net 30"?

In most contexts, "30 days" and "Net 30" mean the same thing: payment is due in full within 30 calendar days of the invoice date. However, some larger companies interpret "Net 30" as 30 days from the end of the month in which the invoice was received (known as "EOM" terms). Always clarify this point upfront: "Just to confirm, is that 30 days from the invoice date?"

Should I put my payment terms on my proposals and invoices?

Yes, absolutely. Your payment terms should be clearly stated on all key documents, including your initial proposal, your contract or terms of service, and every invoice you issue. This prevents ambiguity and ensures there are no surprises. Including your bank details and accepted payment methods also makes it easier for the client to pay you promptly.

My client is ignoring my invoice. What's the first thing I should do?

Before assuming the worst, pick up the phone. An email can be easily ignored, deleted, or lost in a spam filter. A friendly, polite phone call is often the quickest way to resolve the issue. The invoice may have gone to the wrong person, be missing a required PO number, or simply be sitting in a pile awaiting approval. A quick call can often clear up the problem in minutes.

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Stop Chasing, Start Automating

Establishing clear payment terms is foundational to a healthy business, but enforcing them consistently is what truly protects your cash flow. If you're tired of manually tracking due dates and sending follow-up emails, InvoiceReminder can help. It connects to your accounting software to send automated, scheduled reminders for overdue invoices, ensuring your terms are always enforced without the manual effort. Built for UK freelancers, small businesses, and accountants by the team behind WeCovr, which has arranged over one million insurance policies, it’s a robust tool for getting paid faster. The core email reminder features are currently available at no cost.