What payment terms are
Payment terms state when payment is due and what conditions apply. They belong on the invoice, and they should have been agreed before the work started. Terms introduced for the first time on an invoice are generally not enforceable.
The common terms and what they mean
| Term | Meaning | Typical use |
|---|---|---|
| Due on receipt | Payable immediately | Small jobs, domestic customers, first-time customers |
| Net 7 / Net 14 | Due 7 or 14 days from the invoice date | Trades, freelancers, small business to small business |
| Net 30 | Due 30 days from the invoice date | The default with larger companies |
| Net 60 / Net 90 | Due 60 or 90 days out | Large corporates and public sector; price it in |
| EOM | Due at the end of the month of issue | Regular monthly supply |
| 15 MFI | Due on the 15th of the month following invoice | Customers running fixed payment runs |
| 2/10 Net 30 | 2% discount if paid within 10 days, otherwise due in 30 | Encouraging early payment; costly if used routinely |
| 50% upfront | Half before work starts, balance on completion | Projects with materials or a long lead time |
| CIA / PIA | Cash or payment in advance | New customers, custom orders, export |
Always convert terms into a date
“Net 30” requires the reader to know the invoice date, do the arithmetic and agree with your result. A due date printed on the invoice removes all three steps. Put both on the document: the term as a label, and the actual date beside it.
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Choosing terms that suit your business
- Match your own outgoings. If you pay suppliers in 14 days, being paid in 60 is a cash flow problem you have signed up for.
- Shorter terms for new customers. Extend credit once they have paid on time.
- Take deposits on anything with materials. Do not fund a customer’s purchase.
- Price extended terms. If a customer insists on Net 60, that is financing and it has a cost.
- Be consistent. Terms you do not enforce become terms nobody observes.
Early payment discounts — do the arithmetic first
2/10 Net 30 means giving up 2% to be paid twenty days earlier. Annualised, that is an expensive way to borrow — well above typical short-term finance rates. It can still be worth it if cash is genuinely tight, but treat it as a financing decision rather than a goodwill gesture.
Late payment
- State your position in the terms — interest, a fixed fee, or suspension of service.
- Check what your jurisdiction allows. Several have statutory late-payment interest for commercial debt, and consumer rules are often stricter.
- Chase on a schedule. A reminder just after the due date, another a week later, then a call.
- Escalate to the right person. Accounts payable pays; your day-to-day contact usually cannot.
- Change the terms, not the tone, for chronic late payers.
Questions
What does Net 30 mean?
Payment is due 30 days from the invoice date. Some customers interpret it from receipt or from month end, which is exactly why you should also print the actual due date.
What are the best payment terms for a small business?
Net 14 is a reasonable default, with due on receipt for domestic work and a deposit on anything requiring materials. Longer terms should be a priced decision, not a default.
Can I charge interest on late payment?
Often yes, and some jurisdictions set statutory rates for commercial debt. It must be stated on the invoice and agreed in advance. Check the rules where you trade.
Should I offer an early payment discount?
Only if you have worked out the annualised cost. 2/10 Net 30 is a high effective rate. It makes sense as short-term financing, not as a routine concession.
When does the payment clock start?
Normally the invoice date, unless your terms say otherwise. Some customers work from receipt date, so send promptly and print the due date on the document.
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