Common Invoice Payment Terms and How to Set Them

Author: 
Elie Toubiana
 | 
Date: 
September 16, 2022

Businesses, in general, establish payment terms to ensure that they are paid on time, with30 days being the most common (or Net 30).

Common Invoice Payment Terms

Advance Payment

It is a deposit or payment made by a customer before work on a project begins. For example, a customer may pay a 50% deposit to begin work on a project, with the balance due upon completion.

Due upon receipt

Payment due upon receipt is the payment customers must make as soon as they receive the invoice for a transaction. Payment due upon receipt is commonly used by businesses to indicate that payment is due the following business day.

Net 7, 10, 30, 60, 90

These expressions refer to the number of days until a payment is due. For example, Net 30 means the buyer must settle their account within 30 days of the invoice date.

2% 10 Net 30

Customers will receive a 2% discount if they pay their invoice within ten days; otherwise, the total amount is due in 30 days. For example, if a $1,000 invoices paid within ten days, it can be settled for $980.

Line of credit pay

Line of credit payments is most common among big companies. They allow customers to pay their invoices over time, such as monthly or quarterly.

Selecting the Best Invoice Terms for Your Business

Choosing the best payment terms for your company is critical. This is because they help you to control your cash flow. So, you can influence your customers' payment habits. Before you set your terms, consider the following:

Cash Flow Considerations

It would be best to consider customer expectations when establishing invoice payment terms for your company. But, your primary consideration should be your company's cash flow requirements. The best invoice payment terms provide enough cash to keep your business running while considering your clients' needs.

Industry Considerations

When determining invoice payment terms, keep industry standards in mind. While Net30 is the most commonly used term, it's also essential to understand the industry standard. Ensuring your invoice payment terms are in line with industry standards is critical. So, you can get paid on time while keeping your customer happy.

Size of the Invoice

The smaller the invoice, the less time you want to spend chasing down the payment. If the invoice is for a small sum, requiring immediate payment or a Net ten deadline may be preferable. Larger invoices may warrant an extended deadline to give your client more time to raise funds. Consider asking for an upfront deposit if you're working on a large project with a new client to reduce the risk of non-payment.

Early Payment Discounts

Early payment discounts encourage customers to pay you before the invoice due date, saving them money in the long run. These discounts allow you to be paid sooner and meet your financial obligations. Most invoices with Net 30 and more extended terms include early payment discounts.

Late Fees and Interest

Consider including late fees or interest charges in your invoice terms to enforce your payment expectation. It is customary to charge a late fee of 1.5% to 2% of the invoice amount for past-due invoices. When dealing with Delinquent Invoices, you can follow up by emailing customers a friendly payment reminder.

Next time you create an invoice using our Invoice Builder, see if these terms can be added to your invoice for quick and safer invoices.

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