B2B Payment Terms & Escrow
# B2B Payment Terms & Escrow
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:
✅ Buyer confidence in placing large orders
✅ Guaranteed payment for you
✅ Dispute resolution if issues arise
✅ 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:
🚩 Requests for unusual payment methods
🚩 Pressure to ship before payment
🚩 Requests to use unofficial channels
🚩 Inability to provide proper documentation
### Best Practices:
✅ Document all payment agreements
✅ Use secure payment methods
✅ Verify buyer credentials
✅ Consider credit insurance for large orders
✅ 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
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:
✅ Buyer confidence in placing large orders
✅ Guaranteed payment for you
✅ Dispute resolution if issues arise
✅ 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:
🚩 Requests for unusual payment methods
🚩 Pressure to ship before payment
🚩 Requests to use unofficial channels
🚩 Inability to provide proper documentation
### Best Practices:
✅ Document all payment agreements
✅ Use secure payment methods
✅ Verify buyer credentials
✅ Consider credit insurance for large orders
✅ 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