At Michael F. Dolan & Co. we believe that payment terms deserve just as much attention as the price, scope and duration of any new business contract. Irish SMEs can secure profitable work but still experience financial pressure if customers are given lengthy payment periods, unclear invoicing requirements or terms that create unnecessary delays. Before signing a new contract, businesses should carefully review how and when they will be paid, as payment terms can have a direct impact on cash flow, borrowing requirements and overall profitability.
Revenue Does Not Always Mean Available Cash
A signed contract may represent valuable future income, but that income is not necessarily available when the business needs it. If a customer has 60-day or 90-day payment terms, the business may need to deliver the work, pay employees and cover supplier costs long before receiving payment.
This creates a gap between earning revenue and receiving cash. For smaller businesses with limited reserves, that gap can be financially challenging.
Before accepting a contract, calculate:
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When invoices can be issued
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How long the customer has to pay
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Whether payment depends on approval or sign-off
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Whether deposits or staged payments are available
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How much working capital is required
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Whether the business can afford to fund delivery in advance
A contract that looks attractive on paper may create serious cash flow pressure if the payment cycle does not match the business’s own financial commitments.
Review the Payment Period Carefully
Payment terms should never be accepted automatically. Businesses should consider whether the proposed payment period is commercially reasonable and appropriate for the size and nature of the contract.
Long payment periods may be common in certain industries, but that does not mean they are always suitable for an SME. A small business may not have the financial capacity to fund several months of work before receiving payment.
Where possible, negotiate terms that reflect the cost of delivering the contract. This might include:
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A deposit before work begins
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Monthly or milestone-based invoicing
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Payment upon delivery of specific stages
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Shorter payment periods
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Automatic invoicing dates
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Clear deadlines for customer approval
Staged payments can be particularly useful for larger projects because they reduce the amount of money the business has to finance at any one time.
Check Whether Payment Depends on Conditions
Some contracts contain payment conditions that can create uncertainty. For example, payment may only become due once the customer has approved work, signed off a project or received payment from their own client.
These arrangements can transfer significant financial risk onto the SME. Even if your business has completed its obligations, payment may be delayed because of an issue elsewhere in the customer’s organisation or supply chain.
Read the contract carefully to establish whether payment is unconditional or dependent on events outside your control. Any approval process should be clearly defined, including who is responsible for approving the work and how long they have to do so.
Vague wording can lead to disputes and extended payment delays.
Consider the Cost of Late Payment
The contract should clearly state what happens if the customer does not pay on time. Late payments can create additional administration, collection costs and borrowing requirements.
Review whether the agreement includes:
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A clear payment due date
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Interest or charges on overdue amounts
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The right to suspend work
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The right to withhold further services
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A formal dispute process
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Recovery of reasonable collection costs
While enforcing late payment provisions may not always be commercially straightforward, having clear terms establishes expectations and provides greater protection.
It is also important to understand whether the customer can withhold payment because of a dispute relating to part of the work. The contract should distinguish between genuinely disputed amounts and invoices that are otherwise due and payable.
Make Sure Your Invoicing Process Matches the Contract
Even well-negotiated payment terms can be undermined by an inefficient invoicing process. Some contracts require invoices to contain specific information, reference purchase order numbers or be submitted through a particular online system.
Failure to meet these requirements may result in invoices being rejected or payment being delayed.
Before signing, establish:
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What information must appear on invoices
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Whether purchase orders are required
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Who invoices should be sent to
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Whether electronic invoicing is mandatory
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What supporting documents are needed
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When invoices can be submitted
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Whether invoices must be approved by a particular person
The business should have an internal process to ensure invoices are issued promptly and correctly. A delay of even a few days in submitting an invoice can push payment into the following payment cycle.
Assess the Customer’s Payment Reliability
The size and reputation of a customer do not necessarily guarantee prompt payment. Before entering into a significant contract, consider the customer’s payment history and financial standing where appropriate.
Warning signs may include:
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Reports of late payment
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Frequent disputes over invoices
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Requests for unusually long payment terms
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Reluctance to provide clear contract information
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Pressure to begin work before terms are agreed
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A history of changing payment arrangements
If a customer is requesting generous payment terms, consider whether the commercial benefit justifies the additional risk. You may need to limit credit exposure, request a deposit or agree lower initial order values until a reliable payment history has been established.
Match Contract Terms to Your Own Cash Flow
Your payment terms should fit your business model. A company with substantial reserves may be able to accommodate longer payment periods, while an SME with high payroll costs and limited working capital may need payment much sooner.
Before signing, compare the contract’s payment schedule with your own obligations, including:
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Employee wages
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Supplier invoices
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VAT and tax liabilities
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Loan repayments
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Rent and utilities
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Subcontractor costs
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Equipment and materials
If the contract requires you to fund significant costs for several months, calculate whether additional finance will be needed and what that finance will cost.
Negotiate Before You Commit
Payment terms are often easier to negotiate before a contract is signed than after work has begun. Once the business is committed to delivery, its negotiating position may be weaker.
Irish SMEs should review payment terms as part of their wider contract assessment, rather than treating them as standard wording that can be ignored. A profitable contract should generate income in a timeframe that supports the financial stability of the business.
By reviewing payment periods, approval conditions, late payment provisions, invoicing requirements and customer reliability, businesses can reduce risk and protect cash flow before taking on new work.
If you would like to discuss your business, contact us on 091841518 or email michael@michaelfdolan.ie or visit michaelfdolan.ie.
Disclaimer: This article is based on publicly available information and is intended for general guidance only. While every effort has been made to ensure accuracy at the time of publication, details may change and errors may occur. This content does not constitute financial, legal or professional advice. Readers should seek appropriate professional guidance before making decisions. Neither the publisher nor the authors accept liability for any loss arising from reliance on this material.
