Design a payment terms policy

Who this is for

Founder led lower-middle market companies with 5 to 50 million in annual revenue that want consistent terms and fewer exceptions.

The quick answer

Publish clear standard terms by segment. Ask for deposits on custom work and milestone billing on long projects. Offer a small early pay discount only when it lowers cost. With suppliers, align terms to your cash cycle and volume. Use scorecards and a review cadence so both sides see performance and issues early.

The method in seven steps

Segment your terms
Write standard terms by segment and offer. For example net thirty on standard offers and deposit plus milestones for custom work.
Define deposits and milestones
State deposit percent, milestone triggers, and acceptance rules. Keep the wording short and clear.
Set early pay rules
Allow a small credit only when your cost to collect drops. Remove evergreen credits that create drag.
Write exceptions and approvals
Name who can approve non standard terms and the few reasons that qualify.
Align supplier terms
Negotiate terms that fit your cycle and volume. Document how price changes and shortages are handled.
Publish the policy
Put the rules in one place with a one page summary for sales, success, and purchasing.
Review quarterly
Use a terms dashboard that shows average days to pay by segment, exception count, and supplier performance.

Example

A services firm moved to deposits and milestones for custom work and cleaned up old credits. Collections improved and the team spent less time chasing unpaid work.

Pitfalls and fixes

Vague acceptance rules. Write them into milestone billing.
Too many exceptions. Tighten approvals and log reasons.
Terms that fight your cycle. Align both sides to cash reality.

Checklist

Standard terms by segment
Deposit and milestone rules
Early pay policy
Exception approvals
Supplier terms and review cadence
Terms dashboard