Have you ever sent a bill to a customer and wondered when you’ll actually get paid? Or maybe you’ve received an invoice with strange terms like “Net 30” and had no idea what it meant. Don’t worry—you’re not alone! Payment terms can be confusing, but they’re super important for your business.
This guide will walk you through everything you need to know about standard invoice payment terms in simple, easy-to-understand language.
What Are Invoice Payment Terms?
Invoice payment terms are simply the rules that explain when and how customers should pay you. Think of them as friendly instructions that tell your customers when payment is due, what payment methods you accept, if there are discounts for paying early, and what happens if a payment is late.
Clear payment terms help both you and your customers know what to expect. They’re like a roadmap for getting paid on time and keeping your cash flowing smoothly.
For a better understanding of invoices in general, check out our guide on What is an Invoice? Everything You Need to Know.
Example of How Payment Terms Work
Let’s say you run a painting business and just finished a job for the Johnson family. You finish painting their house on June 1 and send them an invoice with “Net 15” payment terms.
When you set payment terms like Net 15, the clock usually starts ticking from the invoice date—regardless of weekends or holidays. So if you sent the invoice on June 1, the due date would be June 16, even if that falls on a Saturday or a holiday.
Your invoice says you accept credit cards, bank transfers, or checks, and mentions a 2% late fee for payments that come in after June 16.
That said, many small businesses (and even big companies) choose to extend the due date to the next business day if the deadline lands on a weekend or a bank holiday. It’s not required unless you put it in writing.
But it’s often seen as a good-faith gesture that makes life easier for your customers.
What Are Contract Payment Terms?
Contract payment terms are similar to invoice payment terms, but they’re included in an agreement before any work starts. Both parties sign this contract.
Contract payment terms might include the total price for goods or services, when payments are due, what payment methods you accept, any late payment penalties, and refund policies.
Why Are Contract Payments Important?
Maria runs a small landscaping company. During her first year in business, she struggled because she didn’t have clear payment terms. Some customers took more than 60 days to pay!
After talking with her accountant, Maria created a new payment system with monthly subscription payments for regular lawn care, 50% deposits for one-time projects, and Net 30 terms with early payment discounts for business clients.
The results changed everything—payments came in faster, late payments decreased, and Maria could finally buy new equipment with confidence.
Having clear payment terms in your contracts protects your cash flow, prevents confusion, shows professionalism, gives you legal protection, and saves time on payment reminders.
It also helps to understand the different types of payment documents. For example, knowing when to use an invoice versus a bill can ensure you’re using the right terms with your clients—check out our guide on Invoice vs. Bill: What’s the Difference? to learn more.
How to Use Payment Terms
Using payment terms effectively is pretty simple. Use clear, simple language that anyone can understand.
Be consistent with your terms. Make them easy to see on your invoices, usually near the total amount due.
Talk about payment terms with clients before starting work, and include all important details like payment methods, due dates, and any late fees.
Who Determines Payment Terms?
Usually, the seller or service provider (that’s you!) sets the payment terms. But you can negotiate with customers, especially for bigger contracts or ongoing business relationships.
You get to create payment terms that work for your business, but you should also think about what’s normal in your industry and what your customers expect.
When Are Payment Terms Created and Updated?
You should set up payment terms when you first start your invoicing process. Include them in your price quotes, proposals, contracts, and invoices.
Review your payment terms once a year to make sure they still work for your business. You might need to update them if your business has grown, you’ve had problems with late payments, you’ve changed what you sell, or industry standards have changed.
For help creating professional invoices that include your payment terms, see our guide on How to Write an Invoice?: Includes Template and Examples.
Common Types of Payment Terms
There are many different payment terms you can use depending on what your business needs. Here are the most important ones:
Payment Timing Terms
- Cash in Advance (CIA) or Payment in Advance (PIA): The customer pays before you provide goods or services.
- Cash with Order (CWO): The customer pays when they place their order.
- Cash on Delivery (COD): The customer pays when they receive the product or service.
- Due Upon Receipt: Payment is expected right away when the customer receives the invoice.
- Net 7/10/15/30/60/90: Shows how many days the customer has to pay after receiving the invoice. Net 30 is most common for small businesses.
- End of Month (EOM): Payment is due at the end of the month when the invoice is dated.
- 2/10 Net 30: The customer gets a 2% discount if they pay within 10 days. Otherwise, full payment is due within 30 days.
Other Payment Arrangements
- Installment Agreements: The customer pays in multiple payments over time.
- Partial Payment: You require a deposit upfront and the rest upon completion.
- Subscriptions and Retainers: The customer pays a regular fee for ongoing services.
When choosing which payment terms to use, think about your relationship with the customer, the size of the order, and what’s normal in your industry.
For certain industries, like construction or manufacturing, you might also need to understand What is a PO Number? The Ultimate Guide.
Control Payment Methods with Payment Terms
Your payment terms should also say which payment methods you accept, such as cash, checks, credit cards, debit cards, electronic payments, payment apps, or cryptocurrency.
Being flexible with payment methods makes it easier for customers to pay you, which means you’ll likely get paid faster.
Our Invoice Maker tool can help you create professional invoices that clearly state your payment methods and terms.
Why You Need Net Terms Management
James runs a web design agency and learned about payment terms the hard way. When he started his business, he simply told clients, “I’ll invoice you when the project is done.” This casual approach led to serious cash flow problems.
After nearly going out of business, James created a structured payment system: 50% deposit before starting work, 25% at the midway review, and 25% when the project is done. He also added a 10% late fee for payments more than 15 days late.
Managing your payment terms is crucial for keeping healthy cash flow. It creates predictable income, builds better customer relationships, reduces late payments, improves cash flow, and shows you’re professional.
Common Payment Terms Challenges
While payment terms are helpful, they can also present some challenges:
- Customers Asking for Longer Terms: Some customers, especially larger companies, might ask for longer payment terms. Be ready to negotiate or explain why your terms are necessary.
- Late Payments Despite Clear Terms: Even with clear terms, some customers will still pay late. Have a system for sending payment reminders.
- Confusion About Terms: Make sure your terms are written in simple language.
- Industry Pressure: Some industries have standard payment terms that might not be ideal for your cash flow.
If you’re dealing with different types of invoice documents, understanding What is a Proforma Invoice? might also help you with pre-payment situations.
Common Invoice Words and Acronyms
Here’s a quick guide to some invoice terms you might come across:
- Invoice: A bill sent to customers asking for payment
- PO (Purchase Order): A document sent by a buyer to order goods or services
- Quote: An estimate of costs before work begins
- Net: The number of days a customer has to pay (e.g., Net 30 = 30 days)
- Terms: Conditions for payment
Common Invoicing Challenges
Besides payment terms challenges, here are some other common invoicing issues small businesses face:
- Incorrect Information: Simple mistakes like wrong customer details can delay payment.
- Delayed Invoicing: Try to invoice right after providing goods or services.
- Inconsistent Invoicing: Sending invoices at random times can confuse customers.
- Poor Record Keeping: Not keeping track of which invoices have been paid can lead to awkward situations.
Final Thoughts
Clear payment terms are one of the easiest ways to protect your business and keep cash flowing smoothly.
When your invoices clearly state when and how you expect to be paid, you help avoid confusion, reduce late payments, and show professionalism.
Think of payment terms as setting healthy boundaries. They let your customers know what’s expected and give you a plan for what to do if things go off track.
Whether you’re just getting started or looking to improve your system, take a moment to review your payment terms.
Are they clear? Do they support your cash flow? Even small tweaks, like adding a late fee or offering a discount for early payment, can make a big difference.
A little effort now can save you a lot of time (and stress) down the road.
FAQs about Invoice Payment Terms
Net 30 is the most common payment term. Customers have 30 days to pay after the invoice date. You might also see Due Upon Receipt, Net 15, or Net 60.
Absolutely. You can adjust terms based on the customer relationship, payment history, or order size. Just be sure to spell it out clearly.
Start with a friendly reminder. If it keeps happening, consider late fees or switch to stricter terms like upfront payment.
Look at your cash flow, your industry, and your customers. Need cash fast? Go for shorter terms like Net 15. Want to win bigger clients? Net 30 or Net 60 might be the way to go.
