Understanding payment terms is crucial for B2B transactions.

Common B2B Payment Terms

Net Terms:

• Net 30: Payment due 30 days after invoice
• Net 60: Payment due 60 days after invoice
• Net 90: Payment due 90 days after invoice

Deposit Structures:

• 50/50: 50% deposit, 50% on delivery
• 30/70: 30% deposit, 70% on delivery
• 100% upfront: Full payment before production

Milestone Payments:

• Payment at specific production stages
• Reduces risk for both parties
• Common for large orders

Escrow Payments

What is Escrow?

A secure payment method where funds are held by a trusted third party until both parties fulfill their obligations.

How It Works:

1. Buyer deposits funds into escrow
2. You produce and ship the order
3. Buyer confirms receipt and satisfaction
4. Funds are released to you

Benefits:

[x] Buyer confidence in placing large orders [x] Guaranteed payment for you [x] Dispute resolution if issues arise [x] Protection for both parties

Escrow Fees:

Typically 1-3% of transaction value, split between parties or paid by buyer.

Letters of Credit (LC)

What is an LC?

A bank guarantee that ensures payment to the seller, provided specific conditions are met.

Types:

• Revocable: Can be modified without notice
• Irrevocable: Cannot be changed without agreement
• Confirmed: Second bank guarantees payment

Process:

1. Buyer requests LC from their bank
2. LC issued to your bank
3. You ship goods and present documents
4. Your bank receives payment
5. You receive funds

Choosing Payment Terms

Factors to Consider:

• Order size and value
• Buyer relationship and history
• Buyer location and regulations
• Your cash flow needs
• Risk tolerance

Recommended Approach:

• New buyers: Escrow or 50% deposit
• Established buyers: Net 30
• Large orders: Milestone payments
• International: Letter of Credit

Payment Security

Red Flags:

dYs(c) Requests for unusual payment methods dYs(c) Pressure to ship before payment dYs(c) Requests to use unofficial channels dYs(c) Inability to provide proper documentation

Best Practices:

[x] Document all payment agreements [x] Use secure payment methods [x] Verify buyer credentials [x] Consider credit insurance for large orders [x] Set clear payment expectations upfront

Late Payments

Prevention:

• Clear payment terms in contract
• Invoice promptly
• Send payment reminders
• Offer early payment discounts

Handling Late Payments:

1. Friendly reminder (1 week late)
2. Formal notice (2 weeks late)
3. Payment plan discussion (3 weeks late)
4. Collection process (30+ days late)

Tax Considerations

• Understand tax obligations in buyer's country
• Include appropriate tax documentation
• Consider VAT/GST for international orders
• Consult tax professional for advice