Business contracts: 5 ways to help boost your cashflow

Late payments. Customer disputes. Scope changes. They can all impact your company’s cashflow. But there are ways to minimise the financial fallout. A formal contract with a customer or supplier can limit your risk and protect your revenue – but only if it contains the right terms and conditions. In this blog, Business Law specialists from Attwaters reveal their top 5 tips for optimising your commercial contracts – and your cashflow.

1. Set clear payment deadlines: this can minimise shortfalls by helping to ensure that invoices are paid on time. As well as specifying terms, it’s a good idea to add a clause expressly stating the need for timely payments. To discourage the late settlement of bills, include a clause about when and how interest will be applied to outstanding invoices.
2. Request advance and milestone payments: for large or long-term engagements, it’s common practice to request a percentage of the fee upfront. This can help cover any costs you’ve incurred to fulfil the contract, for example taking on extra staff or buying supplies. Milestone payments can also be included to cover ongoing overheads and to minimise your financial exposure if a customer goes bust. Ideally these should be based on the work delivered rather than set periods of time.
3. Add suspension and termination rights: if a customer continues to default on payment, then it’s important to have a damage limitation strategy. By including suspension and termination rights, you can pause or stop work if payment is late without breaching your contractual obligations.
4. Include retention of title provisions: this is another useful form of protection especially for companies that supply goods and operate customer credit schemes. By including a retention of title clause, you can state that goods remain your property until customers have paid for them in full. You can even specify a right to repossess the goods from their premises. For businesses that provide consulting or creative services, a similar restriction can be applied to transferring copyright or intellectual property only when a bill has been settled.
5. Review, revise, reinforce:  as business risks, relationships, laws and regulations evolve, it’s important to regularly check your contracts and plug any gaps. For terms and conditions to be effective and enforceable, they must be worded correctly and tailored to accurately reflect your business’s activities. If you encounter a specific problem with a customer or supplier, use it as a learning experience and seek legal advice on how to update your contracts to prevent it happening again.

Stronger contracts, greater advantage

When time is tight, it can be easy to dismiss updating contracts as just another bit of time-consuming business administration. But with the right oversight, they can become a business advantage.

Attwaters helps businesses and their owners strengthen their contracts to better protect their profits and interests. From amplifying payment terms to clarifying service descriptions, we provide common sense advice so you can future-proof your business.

Book a free 30-minute consultation with one of our team on 0330 221 8855 or enquiries@attwaters.co.uk. You can also find out more about common business contract pitfalls in our free guide.