What are invoice payment terms?
Payment terms state how much the customer should pay, by when, and sometimes how, including an agreed early-payment discount or lawful late-payment charge. Agree the terms before supply, then repeat them on the invoice. Adding a new term only when you invoice may not make it part of the contract.
Clear terms can reduce the cash-flow gap and help the customer understand what is expected. Common terms use short codes such as net 30, net 15 and due on receipt. Pair the code with plain language because not every client interprets it the same way.
What do net 30, net 15 and due on receipt mean?
Net terms state the number of days allowed before the full balance is due, but the starting event must be agreed. It may be the invoice date, receipt, delivery, acceptance or month end. Put the calendar due date on the document instead of making the buyer interpret shorthand.
Due on receipt says that no credit period is offered, but it does not identify the moment of receipt or a bank cut-off. Net 7, net 15 and net 30 provide progressively longer credit. Net 60 and net 90 leave the supplier funding the gap for longer. None of these labels overrides mandatory payment-period rules or a different contract.
- Due on receipt
- No credit period is offered. Add a calendar date or other precise trigger to remove ambiguity.
- Net 7 / Net 10
- The full amount is due 7 or 10 days after the agreed starting event.
- Net 15
- The full amount is due 15 days after the agreed starting event.
- Net 30
- The full balance is due within 30 days of the stated starting event.
- Net 60 / Net 90
- The full amount is due after 60 or 90 days. Confirm any mandatory maximum and plan for the longer funding gap.
- End of month (EOM)
- Payment due a set number of days after the end of the month the invoice was issued, e.g. "net 30 EOM".
How do early-payment discounts like 2/10 net 30 work?
An early-payment discount trades part of the price for earlier cash. 2/10 net 30 conventionally lets the buyer deduct 2% if it pays within 10 days; otherwise the full balance is due by day 30. Define the start date, eligible amount, deadline and tax treatment in plain language.
The simple annualised cost of giving up 2% to receive 98% twenty days early is about 37%, before compounding and tax effects. That comparison can be useful, but it is not a quoted borrowing rate and assumes the buyer would otherwise pay exactly on day 30. Model the actual timing, margin and collection risk.
How do I choose the right payment terms?
Choose terms that fit the contract, cash cycle, client approval process and payment-period law. A deposit or milestone schedule can reduce exposure on a large job, but advance payments can have tax consequences. Review the buyer’s creditworthiness before extending a long period.
Use defaults to avoid omissions, then check each transaction. A signed-in FreeBillGen workspace can store default payment days and calculate a suggested due date from the invoice date; the contract and applicable rule still control.
| Term | Plain meaning | Cash-flow effect | Question to settle |
|---|---|---|---|
| Due on receipt | No credit period | Requests payment promptly | What counts as receipt? |
| Net 15 | Full balance due after 15 days | Short credit | Which date starts the count? |
| Net 30 | Full balance due after 30 days | Longer funding gap | Is this agreed and lawful? |
| Net 60 / 90 | Full balance due after 60 or 90 days | Substantial funding gap | Do mandatory limits apply? |
| 2/10 net 30 | 2% discount by day 10, otherwise full by day 30 | Earlier cash at a margin cost | What amount and tax base receive the discount? |
How should I state payment terms on an invoice?
Pair any short code with plain words and a calendar due date. For example, "Net 30 from receipt - payment due by 26 September 2026" identifies both the trigger and deadline. The contract should establish the term before the invoice is issued.
Cover these points so the terms can be applied consistently:
- The term in plain language
- Write "Payment due within 30 days" alongside any "net 30" shorthand so every client understands it.
- An exact due date
- Show the deadline as a real calendar date, not just a number of days, to remove ambiguity.
- What the clock starts from
- State whether days are counted from the invoice date, delivery date or end of month.
- Any early-payment discount
- If you offer one, show the percentage, the deadline to earn it and the discounted total.
- Late-payment terms
- Disclose any contractual interest or fee before agreement and check its legality. Statutory rights can apply separately.
- How to pay
- Give the minimum verified instructions for accepted methods and a payment reference. Never include credentials.
How do payment terms affect cash flow?
Longer credit means funding wages, stock and overheads for longer. A growing business can be profitable on paper and still face a cash shortfall while invoices remain unpaid.
Agree deposits or milestones for larger jobs where appropriate, noting that advance payments can change the tax point. Invoice at the required contractual or tax point, because the payment clock can start on invoice, receipt, delivery, acceptance or another event. Once the invoice is overdue, confirm there is no dispute and follow the agreed escalation process.
Payment terms questions
What does net 30 mean on an invoice?
Net 30 commonly means the full balance is due 30 days after the agreed starting event. That event is often the invoice date, but it can be receipt, delivery or another contractual trigger. State the trigger and calendar due date.
What is the difference between net 15 and net 30?
They provide different credit periods: 15 days versus 30 days after the defined starting event. The shorter term can reduce the funding gap, but either term must be agreed, workable for the buyer's process and allowed by mandatory law.
What does 2/10 net 30 mean?
It conventionally offers a 2% discount for payment within 10 days, with the full amount due by day 30. Define the starting event, eligible amount, deadlines, rounding and tax treatment instead of relying on the code alone.
Does due on receipt mean pay immediately?
It asks for payment without an agreed credit period, but "receipt" and the practical payment cut-off can still be unclear. Use an exact due date and agree the term before supplying the work.
What payment terms should a small business use?
There is no universal best term. Compare your cash cycle with the buyer’s approval process and risk, and check any mandatory payment-period rule. Deposits, milestones or shorter credit can reduce exposure, while longer terms should be priced and funded deliberately.
Can I charge interest on overdue invoices?
A contract or statute may allow interest, but the right, rate, disclosure and transaction scope vary. EU rules provide statutory rights for qualifying commercial transactions through national law, and the UK has its own late-commercial-payment regime. Consumer debts follow different protections.