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What are Invoice Payment Terms?

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Invoice Payments terms are included in the bills that small businesses send out to their clients outlining different payment methods clients can use and how quickly they expect payment for their services. This gives better control to small businesses over their cash flow and helps them plan ahead for their future expenses. 

What are the Payment terms on an invoice?

Payment terms on an invoice indicate small business clients when they are expected to pay the invoice and the different payment methods they may use to submit payments. There are a range of payments terms businesses may use to include in their invoices. 

Below, we have listed different invoice payment terms:

Invoice Payment Term

Term Definition

Upon Receipt This means you expect payment as soon as the client receives the invoice
Net 7 The Payment is due 7 days from the invoice date
Net 21 Payment is due 21 days from the invoice date
EOM Payment is due at the end of the month in which the invoice is received
15 MFI (Month Following The Invoice) Payment is due at 15th of the month following the invoice date. 
PIA (Payment In Advance) You are letting your client know that you expect them to pay the total amount due for a project upfront, before you begin work. 
CIA (Cash In Advance) You are specifying the client you want payment in advance and also in cash
Net 30 Payment is due from the 30 days of the invoice. This is one of the most common payment terms for freelancers and small businesses. 
2/10 Net 30 This is a variation of Net 30 that offers a discount on early payment. This payment terms indicates that the payment is due net 30 days but if you pay within 10 days you will get a discount of 2%
50% Upfront The client is expected to lay 50% of the invoice amount before the work begins. This is common for big projects that take time for completion of work. 

Late fees for Unpaid Invoices:

You want to make sure your invoice payments terms are enforceable. Including late fees within your invoice terms will let clients know they will be charged an extra fee for late payment. Charging late fees is good for businesses as it leads to a higher percentage of paid invoices. Late fees charged for unpaid invoices usually run between 1.5 and 3% interest per month. You need to make sure any late payment invoice terms you include on the bill should abide by state laws. You need to familiarize yourself with the maximum annual interest rate in your state. 

Also Read – Top 10 Free Invoicing Software for Small Businesses

What are the best Invoice Payment terms for businesses?

The best invoice payment terms for your business is the one that makes you get paid faster. Some best practices for invoice payment terms include:

  • Politely word your invoice payment terms:

Being polite while writing your invoice payment terms on the bill, isn’t just about maintaining good relations with your clients but also ensures your invoices get paid on time. Try to mention words like “Please” and “Thank You” that would increase your chances of getting paid on time. 

  • Set specific deadlines:

Setting clear, specific deadlines in your payment terms can help your business receive payment faster. Complicated and vague invoice terms such as Payment due upon receipt and Net 30 can confuse clients which may lead to late payments. Use precise language in your billing due dates. For instance, list the exact date of payment you’re expecting. 

  • Shorter Payment Period:

In order, to get paid faster by your clients, considering shortening the payment period on your invoices. Usually the 30 day payment period was a common practice, technology has driven to make payments faster through online payments and direct transfers. You can start by shortening your payment period slightly, from 30 days to 21 days and see if it helps to get paid faster. 

  • Include and Enforce late fees:

Even small overdue penalties such as late fees of 2% interest per month, can give clients added incentive to pay their invoices on time. You just need to make sure your late fee policy with the client upfront and be polite but firm when enforcing penalties. 

  • Offer flexible payment methods:

The more options you give clients for submitting their invoice payments, the more likely they are to pay their invoices on time. When the client has an opinion of a different payment method, they tend to pay quickly and easily. Consider allowing your clients to set up automatic bill payments, so that they can schedule payments automatically and not have to think about payming you everytime you send an invoice email.  

Suggested Reads – How to Get a Small Business Disaster Loan During COVID-19

  • Reward early payment:

Offering your clients, discount for early payment of their invoices gives them an incentive to pay you sooner by rewarding them with a discount. 

What payment method should I accept?

Small businesses should offer as many payment methods as feasible for getting paid faster and on time. If you offer your client different payment methods, it becomes easy for them to choose payment which is convenient for them and pay you faster. 

Below are the common payment methods you can consider:

  • Cash
  • Check
  • Online Payments
  • Mobile Payments
  • Bitcoin and other cryptocurrencies
  • Credit cards including Visa, Mastercard and American Express
Previous Invoice Payment Methods For Small Business: How to Get Paid Faster
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