Payment Terms Explained
Understanding Net 30, Due on Receipt, and choosing the right terms for your business.
Payment terms set expectations for when you'll get paid. Using the right terms—and enforcing them—directly impacts your cash flow. Here's what different terms mean and how to choose the right ones.
Common Payment Terms Defined
Due on Receipt: Payment expected immediately upon receiving the invoice. Net 15: Payment due within 15 days of invoice date. Net 30: Payment due within 30 days (most common in B2B). Net 60: Payment due within 60 days (common with larger companies). 2/10 Net 30: 2% discount if paid within 10 days, otherwise due in 30.
Choosing the Right Terms
Consider your cash flow needs, client relationships, and industry norms. New clients should have shorter terms (Due on Receipt or Net 15). Established clients with good payment history can have longer terms. Match terms to your project size—bigger projects warrant upfront deposits.
When to Use Due on Receipt
Due on Receipt works best for: small projects under a few hundred dollars, new clients without payment history, one-time services, and situations where you've had payment issues before. It's direct but professional.
When to Use Net 30
Net 30 is standard for B2B relationships. It gives clients time to process invoices through their accounting systems. Use it for established clients, larger invoices, and ongoing business relationships. Some industries (like corporate and government) expect Net 30 or longer.
Enforcing Payment Terms
State terms clearly on every invoice. Send reminders before due dates. Follow up promptly on late payments—a friendly reminder often does the trick. Consider late fees (1-2% monthly is standard) but enforce them consistently. For chronic late payers, shorten terms or require deposits.
Quick Steps
- 1
Assess your cash flow needs
Determine how quickly you need to receive payments to operate smoothly.
- 2
Research industry standards
Understand what terms are typical in your industry and client segment.
- 3
Set terms based on client type
Use shorter terms for new clients, longer for established relationships.
- 4
Document terms clearly
Include payment terms prominently on every invoice and contract.
- 5
Create a follow-up process
Plan how and when you'll follow up on unpaid invoices.