What are the best payment terms?

What are the best payment terms?

What are the terms of payment

Non-payment of invoices is one of the most common problems faced by both entrepreneurs and freelancers. Although the law requires that payment terms to suppliers should not exceed 60 days, this is not always the case.

In order to combat late payment in commercial transactions, additional measures were approved, such as Law 15/2010. This regulation establishes that all commercial companies must expressly specify the average supplier payment period in the notes to their annual accounts.

The Payment Law has undergone several modifications over time. Currently, the payment period to suppliers must be 30 calendar days, including holidays and vacations. However, companies may sign a contract extending this period to 60 days. When this period is exceeded, the contract or agreement between both parties will become null and void.

In addition, a new regulation is expected to be approved in 2019 to solve the problem of non-payments between companies. If the new legislation is approved, a State Observatory on Late Payments will be created, which will be in charge of making periodic reports on the evolution of payments between companies.

Terms of payment in a contract

In high-income countries, entrepreneurs routinely accept digital payments from their customers and pay their suppliers, tax agencies and other entities electronically. However, in developing countries, where more than one-third of adults report being self-employed, (i) digital payments are an underdeveloped business tool and one that can provide significant benefits to both entrepreneurs and society at large by bringing more people into the formal financial system. The transition from cash to digital payments represents large potential benefits for entrepreneurs around the world given the rapid increase in the number of people owning cell phones and the facilitation of digital payments in developing countries. A new report highlights how digital payments can benefit entrepreneurs. (i)Greater efficiency brings greater profits

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For large entrepreneurs in developing countries, digital applications such as e-filing and e-payment of license fees can reduce the high costs of tax compliance. They can also promote the formalization of businesses and create a larger tax base for governments. In addition, with the electronic deposit of workers’ wages, employers can ensure the reliability and security of such payments, benefiting both employers and employees.

Example payment terms

Direct payment represents a certain form of anticipation with the variant that it is the buyer who receives all the advantage, leaving the seller in absolute inferiority, since he must send the goods and wait for payment until they have arrived at their destination.

It may happen that the importer withdraws the goods and deliberately and unduly delays payment, or finally fails to make payment, with serious losses for the exporter who, in the best of cases, will have to return the goods to their destination, assuming unforeseen costs, thus suffering an effective loss. In this modality there are no guarantees, the intervention of a bank is limited to facilitating a draft under instructions from the client.

Documentary collection is used when the level of confidence that the exporter has in the importer is optimal and therefore does not require more guarantees than those of his own conduct and credit. It assumes a high level of knowledge between both and has the advantage of lower costs than a letter of credit.

Company payment terms examples

There is a broad consensus that high-value payment systems should be settled on the same day, and the general practice is that payments should be settled as soon as possible. Originally, these systems were developed to settle financial markets, to settle obligations arising in other payment systems and for financial intermediaries to settle their obligations, so the average payment amount was very high. However, technological and financial advances have made it possible for financial intermediaries to offer the services of these systems to their clients for smaller payments.

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The Law for the Transparency and Regulation of Financial Services assists the Central Institute in the aforementioned purpose by empowering it to regulate the services and means of payment provided by banks to their customers and the fees charged by banks to each other.