Your invoice payment terms are more than just fine print at the bottom of a document. They are the rules of engagement that dictate your business's cash flow. If you don't set the rules, your clients will set them for you—and they will likely choose to pay you later rather than sooner.

Many small business owners default to "Net 30" because they think it's the standard. But is waiting 30 days for payment actually good for your business? Often, the answer is no.

In this guide, we will decode the jargon of payment terms, help you choose the right ones for your industry, and show you how to enforce them without ruining client relationships.

Common Payment Terms Decoded

Here is a breakdown of the acronyms you'll see in the business world:

Net 7 / 10 / 15 / 30 / 60 / 90
"Net" refers to the net amount due. The number is the days the client has to pay.
- Net 7: Due in 7 days. (Great for freelancers).
- Net 30: Due in 30 days. (Standard corporate term).
- Net 60/90: Due in 60/90 days. (Common in large retail/manufacturing, but dangerous for small businesses).
Due on Receipt
Payment is due the moment the client receives the invoice. This is the best term for cash flow but requires immediate action from the client.
PIA (Payment in Advance)
You get paid 100% before you start working. Common for new clients or product sales.
CIA (Cash in Advance)
Similar to PIA, usually implies cash or wire transfer before goods are shipped.
COD (Cash on Delivery)
Payment is collected at the time of delivery. If they don't pay, you don't hand over the goods.
EOM (End of Month)
Payment is due at the end of the current month. Example: Invoice sent Jan 15th, due Jan 31st.
15 MFI (Month Following Invoice)
Due on the 15th of the month after the invoice date. Example: Invoice Jan 20th, due Feb 15th.

Why Your Payment Terms Matter

Your terms directly impact your Working Capital. This is the money you have available to pay rent, salaries, and suppliers.

If you pay your staff every 14 days but your clients pay you every 60 days, you have a 46-day "cash gap." You effectively become a bank, lending money to your clients interest-free. This gap is what kills profitable businesses.

Clear terms also provide Legal Protection. If a client refuses to pay, having signed terms stating "Interest of 1.5% per month charged on overdue accounts" gives you legal standing to collect those fees.

How to Choose the Right Terms

There is no one-size-fits-all. Consider these factors:

1. Industry Standards

Construction: Often Net 30 or "Paid when Paid" (avoid this if possible).
Freelance Design/Dev: Net 7 or Net 15.
Retail Wholesale: Net 30 or Net 60.

2. Client Relationship

New Client: Ask for 50% upfront (Deposit) + Net 7 on completion.
Trusted Long-term Client: Net 30 is acceptable.

3. Project Size

Small Job (< $500): Due on Receipt.
Large Job (> $10,000): Milestone payments (e.g., 30% start, 30% mid, 40% end).

Negotiating Better Terms

Big companies will often try to bully you into Net 60 or Net 90 terms. You don't have to accept them blindly.

How to push back:

"Our standard policy for projects under $5k is Net 15. Can we meet in the middle at Net 20?"
"We can agree to Net 45, but we'll need to add a 5% financing fee to the total cost."
"We can do Net 60, but we'll need a 50% deposit upfront to cover our material costs."

Late Fees: The Stick

You must have a late fee policy, even if you rarely enforce it. It signals that you are a professional who expects to be paid on time.

Standard Wording:
"Payment is due within 30 days. Please be aware that a late fee of 1.5% per month (18% APR) will be applied to overdue balances."

Legal Note: Check your local usury laws. You generally cannot charge excessive interest (e.g., 50% interest is illegal loan sharking).

Early Payment Discounts: The Carrot

Want to get paid faster? Offer a discount. The most common format is:

2/10 Net 30

Meaning: The client gets a 2% discount if they pay within 10 days. Otherwise, the full amount is due in 30 days.

Why do it? Giving up 2% of your profit might be cheaper than borrowing money or using a credit card to cover your cash flow gap.

International Payment Terms

When dealing with clients abroad, risk increases.

Letter of Credit (LC): A bank guarantees the payment. Very secure but involves paperwork and fees.
Currency Risk: Specify the currency clearly (e.g., "USD" or "CAD"). If the exchange rate fluctuates, you could lose money. Consider asking for payment in your local currency.

Clear vs. Ambiguous Wording

Don't leave room for interpretation.

Bad Wording	Good Wording
"Payment due upon receipt" (Vague)	"Payment due by October 15, 2025" (Specific)
"Net 30" (Jargon)	"Payment due within 30 days of invoice date" (Clear)
"Please pay soon"	"Late fees apply after 30 days"

Enforcing Your Terms

If a client misses the deadline:

Day 1 Overdue: Send a polite reminder. "Just a heads up, this was due yesterday."
Day 7 Overdue: Send a firmer email. Attach the invoice again.
Day 15 Overdue: Call them. Ask for a specific payment date.
Day 30 Overdue: Send a formal demand letter and apply the late fee. Stop all work. Do not deliver more value until paid.

Frequently Asked Questions

1. Can I change my payment terms for existing clients?

Yes, but give notice. "Starting Jan 1st, we are moving to Net 15 terms to streamline our accounting."

2. Are verbal payment terms legally binding?

They can be, but they are incredibly hard to prove in court. Always get terms in writing (email or contract).

3. What is "Net Monthly"?

It usually means payment is due at the end of the month following the invoice month. It's very long (up to 60 days). Avoid it.

4. Should I put terms on the invoice or the contract?

Both. The contract is the legal agreement; the invoice is the reminder. They must match.

5. Is "Due on Receipt" rude?

No. It's standard for digital services. However, for large corporate clients, it's often operationally impossible for them to pay instantly.

6. Can I charge a credit card fee?

It depends on your local laws and merchant agreement. In many places, you can pass on the surcharge (e.g., 3%), but you must disclose it.

7. What is a "retainer"?

A fee paid in advance to secure your services for a set period. It's the best form of payment term (100% upfront).

8. How do I politely ask for a deposit?

"To schedule your project and purchase materials, we require a 50% deposit. The balance is due upon completion."

9. What does "2/10 Net 30" mean exactly?

2% discount if paid in 10 days; otherwise, full amount due in 30 days.

10. Can I refuse to work if they don't sign terms?

Absolutely. Working without agreed terms is a recipe for disaster.

11. What is "Consignment"?

You only get paid when the retailer sells your product to the end customer. High risk for you.

12. How do I handle a client who ignores terms?

Stop working immediately. Do not let the debt grow. "We'd love to continue, but we need to clear the outstanding balance first."

13. Should I use "Days" or "Business Days"?

"Days" (Calendar days) is standard. "Business days" can add weekends and holidays, extending the wait.

Conclusion: Take Control of Your Financial Destiny

Payment terms are a negotiation, not a dictation. By understanding what Net 30, COD, and 2/10 mean, you can structure deals that keep your cash flow healthy.

Remember: You are a business, not a bank. Set fair terms, communicate them clearly, and enforce them politely but firmly.

Set Your Terms with Invoicely

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