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10 Invoicing & Payment Terms You Should Know

Author: 
Elie Toubiana
 | 
Date: 
September 15, 2022

Regardless of industry or size, businesses need consistent cash flow from their clients and customers to cover expenses such as employee salaries and utilities.

1. Terms of Sale

These are the payment terms agreed upon by you and the buyer. Cost, amount, delivery, payment method, and payment due date are all terms of sale. These are necessary elements of any invoice.

2. Payment in Advance

Payment in advance, or PIA, is a payment made ahead of time. It's not uncommon for business owners to demand upfront payments for their goods or services. A freelance graphic designer, for example, may require a 50% down payment before beginning a project. Advance payments protect sellers from non-payments and cover any out-of-pocket expenses required to complete the project.

3. Immediate Payment

This phrase is synonymous with "Cash on Delivery" (COD) or "Payable on Receipt." It indicates that a payment is due along with the delivery of a product or service. If the client does not immediately make the payment, the seller has the right to repossess the intellectual property goods.

4. Net7, 10, 30, 60, 90; Updating Invoicing Terms

These indicate that the net payment is due seven days, ten days, thirty days, sixty days, or ninety days after the invoice date. Because the term "net" can be confusing to both accounts payable teams and clients, plan to use a more clear word in your contracts, such as "Days," instead of "Net." Furthermore, to maintain a positive cash flow, use shorter terms such as "Please make payment within ten days."

5. 2/10 Net 30

A term like "Net 30" requires the client or customer to pay within 30 days. They will, however, receive a 2% discount if they pay within ten days. You are free to change these terms as you see fit. You could, for example, sweeten the pot by offering a 5% discount on invoices paid within a week.

6. Line of Credit Pay

Line of Credit Pay lets customers pay their bills over time, usually monthly or quarterly. So, it simply allows the customer to buy a product or service on credit.

7. Quotes & Estimates

Quotes and estimates are simply the estimated cost of your goods or services. This rough estimate allows the client to compare prices in the comfort of their own home. While this isn't the final amount you'll bill the client, it should still include invoicing essentials.

8. Recurring Invoice

A recurring invoice is a billing term that refers to ongoing services. Like a membership or subscription, they are typically for the same amount each month. This monthly payment eliminates some uncertainty in invoicing and simplifies your life.

9. Interest Invoice — Make It Clear

Remember that when calculating late payment interest, you only charge for the number of days the payment is past due. An interest invoice informs the client that the invoice contains the relevant interest charges and payment date to settle the payment. Every month, resend these invoices and adjust the calculation to reflect the additional days past due.

10. Invoice Factoring

Invoice factoring is transferring your invoice to an invoice factoring company. You could get an 85% advance in as little as one day. However, remember that these companies will charge you a fee, so read the fine print carefully.

Make sure to add these terms next time you make an invoice using Invoice Builder.

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