Invoice Payment Terms Explained: Net 30, Due on Receipt, and More

Understanding Payment Terms

Payment terms define when and how your clients should pay. Using the right terms can significantly impact your cash flow and reduce payment delays. Let's break down the most common options.

Common Payment Terms Explained

Due on Receipt

What it means: Payment is expected immediately upon receiving the invoice.

Best for: Small projects, one-time clients, or when you need quick payment.

Pros: Fastest payment turnaround

Cons: May seem aggressive to some clients

Net 15

What it means: Payment is due within 15 days of the invoice date.

Best for: Small to medium projects, established client relationships.

Pros: Relatively quick payment while giving clients some flexibility

Cons: Some larger companies may struggle with this timeline

Net 30

What it means: Payment is due within 30 days of the invoice date.

Best for: Standard business relationships, larger companies.

Pros: Industry standard, most clients are comfortable with it

Cons: Longer wait for payment

Net 60 / Net 90

What it means: Payment is due within 60 or 90 days.

Best for: Enterprise clients, government contracts.

Pros: May be required for large corporate clients

Cons: Significant cash flow impact; only sustainable if you have reserves

2/10 Net 30

What it means: 2% discount if paid within 10 days; otherwise, full amount due in 30 days.

Best for: Encouraging early payment on larger invoices.

Pros: Incentivizes faster payment

Cons: Reduces your revenue if clients take the discount

50% Upfront, 50% on Completion

What it means: Half payment before starting, half upon delivery.

Best for: Larger projects, new client relationships.

Pros: Reduces risk, ensures client commitment

Cons: Some clients may resist upfront payments

Choosing the Right Terms for Your Business

Consider These Factors:

• Your cash flow needs: Can you wait 30-60 days for payment?
• Industry standards: What's normal in your field?
• Client size: Large companies often require longer terms
• Project size: Larger projects may warrant deposits
• Client relationship: New vs. established clients

Late Payment Terms

Always specify what happens if payment is late:

• Grace period: How many days before penalties apply?
• Late fee: Typically 1-2% per month on the outstanding balance
• Service suspension: At what point will you pause work?

Example Late Payment Clause:

"Invoices not paid within 30 days of the due date will incur a late fee of 1.5% per month on the outstanding balance. Work may be suspended on accounts more than 45 days past due."

Tips for Getting Paid Faster

• Send invoices immediately upon project completion
• Make payment easy (multiple options, clear instructions)
• Send reminders before the due date
• Consider offering early payment discounts
• Build relationships with accounts payable contacts

Conclusion

The right payment terms balance your cash flow needs with client expectations. Start with terms that work for you, be willing to negotiate for valuable clients, and always put your terms in writing before starting work.