Payment terms are information about payment when you sell goods or services to a client or buy goods or services from a supplier.
What’s included in payment terms
Payment terms outline how and when the buyer should pay for goods or services. It’s important to provide clear payment terms to make it easy for clients to pay you, and to encourage them to pay on time.
Payment terms should include:
- Due date
- Total invoice amount
- Accepted payment methods
- Late fees and interest charges
Depending on what you sell and how you accept payment, you can also include information about returns, warranties, payment plans, early payment incentives, and so on.
How to choose the right due date
Due dates can vary from industry to industry and from country to country, and it also depends on how long you’re willing to extend credit to customers.
You should also take into consideration your business’ cash flow: If you have a lot of regular costs, then you should make sure that your clients pay you as quickly as possible, so that you have more money coming into your business than going out of it.
Here are some examples of payment terms:
- Prepayment, where clients pay upfront
- Upfront percentage, where the client pays part of the amount upfront and the rest after the goods or services have been delivered
- An installment agreement, where the clients pay in installments over a specified period
- Payment after the goods or services have been delivered, for example 14 or 30 days after the invoice has been issued
If you choose payment after the goods or services have been delivered, you should specify the payment deadline as net days. Net 14 is 14 days after the invoice was issued, net 30 is 30 days after the invoice was issued.
Usually, invoices are due somewhere between 12-30 days after the invoice is issued.