When clients pay late, you might be left juggling bills and struggling to stay ahead. But there’s a simple solution to keep those unpaid invoices from piling up: payment terms.

Payment terms spell out exactly when and how clients will pay you. By setting transparent due dates and payment methods right from the start, you make it easy for clients to pay on time and help your small business stay on track.

Learn how to set up and manage payment terms that work for your business and your clients. Keep your cash flow smooth and predictable.

What Are Payment Terms?

Payment terms are the rules you and your clients agree to follow. They’re a part of every invoice you send, spelling out exactly when payment is due, how to pay, and what happens if payment is late.

Think of payment terms as a friendly contract between you and your customers. They answer important questions like:

• When is the payment due date?
• What payment methods do you accept?
• Are there any discounts for paying early?
• Will you charge late fees?
• Do you need a deposit to start work?

Well-written payment terms put everyone on the same page. Your clients know exactly when and how to pay their invoices, and you know when to expect payment, which helps you better manage your cash flow.

Good payment terms are especially important for service businesses and companies that sell high-value items. They give you a legal basis for collecting money if clients don’t pay on time. Plus, they help you plan ahead by letting you know exactly when money will come in.

9 Standard Payment Terms

Different businesses are best suited for different payment terms. Let’s take a look at the most common ways to get paid and when to use each one:

1. Net Payment Terms

One of the simplest and most common ways to handle invoice payments is using net payment terms. These simply set a deadline in days for when payments are due. A net 30 invoice, for example, means the client has 30 days to pay. In fact, net 30 is a common type of invoice because it gives clients enough time to pay the invoice while keeping your cash flow healthy.

You can use any payment window you want when using net payment terms. You might choose a shorter window, like net 15, or a longer one, like net 60 or net 90.

Many net payment terms invoices include discounts to incentivize prompt payment. For example, a net 30 2/10 invoice means your client gets a 2% discount if they pay within 10 days. This encourages people to pay faster.

2. End of Month (EOM)

With EOM terms, all invoices are due at the end of the month, no matter when you send them. This makes it easier to track when you’ll get paid, but the amount of time customers have to pay the invoice varies.

3. Cash in Advance (CIA)

Sometimes, you need to get paid before you start the work. CIA terms protect your small business by requiring clients to pay the invoice upfront. This works well for:

• New customers
• Large projects
• Custom orders
• High-risk jobs

4. Due on Receipt

With due on receipt terms, customers pay as soon as they receive your invoice. Think of it as “net 0″—payment is due right away. These payment terms help you get paid faster, but they don’t give clients much flexibility.

5. Cash Next Delivery (CND)

With CND terms, customers have to pay for their last order before getting their next one. This is a good choice for regular clients who order from you often. For example, if you deliver supplies every Monday, they need to pay for last week’s delivery before getting this week’s order. This keeps unpaid invoices from piling up while keeping steady business with repeat customers.

6. Line of Credit (LOC)

Some small businesses offer trusted customers a line of credit. This lets them make purchases and pay later, usually with set payment periods. It’s a great way to build trust, but you’ll want to be selective about which clients you offer LOC payment terms to avoid running into cash flow problems.

7. Recurring Payment Terms

If you provide ongoing services, regular invoice payment schedules make sense. You might set up payment periods like monthly retainers, quarterly payments, or annual subscriptions. These terms stabilize your cash flow and make your income more predictable.

8. Stage Payments

Payments for big projects often work best spread out across milestones. For example, you might ask for:

• 30% to start
• 30% at the halfway point
• 40% on completion

This helps manage your risk and keeps the cash flowing throughout the project. Just make sure to discuss stages with your clients and clearly define what counts as a stage in your payment terms.

9. Custom Payment Arrangements

Sometimes, standard terms don’t quite fit you and your clients’ needs. When this happens, you can create custom payment terms for special situations. You might choose to combine some of the payment terms above or add in extra conditions, such as:

• Split payments for large orders
• Seasonal payment adjustments
• Volume-based discounts
• Custom payment periods for big clients

How To Include Terms of Payment on an Invoice

When it comes to getting paid on time, a well-written invoice does the heavy lifting for you. Let’s look at what to include and where to put it:

Essential Elements

Every invoice should have these key details about the payment terms:

• The date you issued the invoice 
• An invoice number for tracking payments
• The total amount due
• When payment is due (like net 30 or EOM)
• Payment options (like credit card or ACH bank transfer)
• Clear instructions for making the payments
• Any late fees that may apply
• Early payment discounts if you offer them
• Contact information for questions or concerns
• Any extra information or custom requirements

Where To Place Your Terms

Pencil in your payment terms where they’re easy to find. Common spots include:

• Just below your company details
• Near the total amount due
• Above the list of payment options
• In a clearly marked “Payment Terms” box

Include all the payment details on one page. This avoids confusion and gets you paid faster.

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Examples of Payment Terms

When you’re trying to understand payment terms, examples can help cement your understanding. Here are some everyday examples that illustrate how you might encounter payment terms in the wild:

Landscaping Company: 2/10 Net 30 Payment Terms

A landscaping company uses net 30 terms for ongoing maintenance contracts. It sends monthly invoices on the first of each month for regular services. To encourage prompt payment, it uses:

• A 2% discount for payments received within 10 days
• A late fee of 1.5% for balances past 30 days
• The option to set up automatic monthly payments by ACH

This structure works because it gives property managers time to process payments but also keeps up a steady cash flow.

Office Cleaning Service: EOM Payment Terms

A cleaning service keeps it simple by billing clients at the end of the month for that month’s services. The payment structure includes:

• All invoices due by the last day of the following month
• A 5% discount for clients who prepay quarterly
• Automatic billing available to prevent late payments
• A pause in services when a payment is 15 days past due

This system helps the company manage multiple clients while offering incentives for timely payments.

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4 Tips for Managing Payment Terms Effectively

Setting payment terms is just the first step. You need a good system in place to make sure they work. Here are some key tips to help you manage payments better:

1. Track Your Finances

Keep a close eye on your cash flow. Track which clients always pay on time and which ones often need reminders. Study what works in your industry: Are your payment terms too strict? Too lenient? 

Analyzing this information helps you decide whether you need to adjust your invoice payment terms for certain clients, offer early payment discounts, or update your late fee policy.

2. Communicate Clearly

Clear messaging today prevents payment hassles tomorrow. Make sure your clients fully understand your terms before starting the work. Send friendly payment reminders as the due date approaches. 

When payments are late, follow up promptly, but keep a professional tone. Document any discussions about payment so you have a record if disputes come up later.

3. Keep It Secure

Protect your clients’ payment information by using secure processing systems and following all relevant payment handling laws. Keep your security measures up to date and regularly back up your payment records. This protects both you and your clients while building trust in your small business.

4. Use the Right Tools

Invest in quality invoicing software to keep track of payments. Set up automatic reminders for due dates and alerts for late invoices. This makes it easier to stay on top of who owes what and when you can expect payment. Regular tracking also helps you spot payment patterns so you can adjust terms if needed.

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Invoice Simple’s Payment Processing Software Makes It Easy

Get paid faster by combining smart payment terms with easy online invoicing.

With Invoice Simple, you can give customers flexible online payment options. Send digital invoices via email, SMS, or by manually sharing a link. You can also make it easy for your clients to pay you instantly from a paper invoice by turning on the Invoice Simple Payments QR Code. Your clients can scan the QR Code with their phones and pay online. It’s that easy.