One of the most important parts of doing business is getting paid — and that starts with sending invoices.
Think of an invoice as a confirmation that a service has been performed or a product was shipped. The main purpose of an invoice, however, is to get your business paid.
To that end, it’s important to include several key payment terms on your invoice. What are payment terms? Invoice payment terms are the conditions that a seller and buyer agree upon when goods and services are provided in exchange for payment.
Not only do invoice payment terms define when payment is expected, but they can also help small businesses forecast revenue, manage cash flow, and identify potential shortfalls. Plus, they can help reduce late payments and serve as evidence in case of disputes or non-payment.
Read on to learn more about invoice payment terms, the most popular types of payment terms, and how to choose the best ones to serve your business.
You might be wondering, “what are payment terms on an invoice?” First, an invoice is a legal document that provides proof of sale. Invoice payment terms stipulate how and when you will accept payments from customers. After all, it’s important for your customers to know the details of what they bought from you — including amounts, dates, descriptions, and quantities — but it’s just as important for customers to clearly understand how to pay you.
That’s why it’s crucial to know how to write payment terms on an invoice.
By including the right payment terms on invoices, businesses can help customers more easily proceed with their payments. It can also help third parties (think a lawyer, judge, or arbitrator) determine if a customer is behind on payment.
When it comes to adding payment terms to your invoice, here’s some information to include:
In addition to these payment terms, there are a few basic details that your invoices should include, such as:
Learn more about how to create invoicing solutions for your business.
You can invoice your customers all day but if they're not paying you, you may not stay in business very long. That's why it’s so important to send each invoice with payment terms included.
Again, payment terms for invoices outline when you expect to receive payment from your customers and how you plan to accept payments. For example, you might provide invoice payment terms requiring payment within 14 days. You can also set different terms depending on the industry you’re in and the customer you’re billing. However, the payment terms on any single invoice should always be clear, understandable, and consistent. Remember to simply and effectively communicate your payment terms on your invoice with the right wording.
Invoice payment terms should be a surprise, either. You should agree to the terms in advance (when you take the order or sign the contract), and your invoice should reflect those terms.
As described above, sample invoice payment terms include:
Choosing the right invoice payment term for your business is a personal decision that depends on various factors, from what industry you’re in, to whether or not you’re short on cash.
Net 30 is generally one of the most common invoice payment terms. But that doesn’t mean you can’t establish a different term for your business, especially if you find yourself looking for tips to address a cash flow crunch.
For example, 2/10 Net 30 is another popular invoice payment term example, which gives your customers a choice to pay early and receive a minor discount.
Here are some other common invoice payment terms for businesses:
There are plenty of invoice payment term examples to choose from depending on your business needs, goods and services, and customer relationships. If a business is short on cash flow, for instance, it might require customers to submit payment upon receipt or even in advance. Or if a business needs to acquire certain materials before providing a service, such as in the construction industry, it might use the 50% Upfront payment term to help cover those expenses.
Looking for more information on how to apply these payment terms to your invoices? Check out our invoice templates, plus learn how to create an Excel invoice.
It’s important for business owners to know how to write payment terms on invoices so they can make it as simple as possible for customers to pay. While payment terms might seem complex, you should aim to use concise, direct, and specific language to clearly communicate this information.
Still not sure how to write payment terms and conditions for invoices? Here are some quick tips to get started:
If you take your payment terms seriously, your customers will, too. If you stipulate a Net 30 term and a customer doesn't pay, then consider charging interest or holding out on orders or services.
It’s a good idea to develop and implement a formal collection process and policy for late payments. And if a customer is a known late-payer, try to up your prices to cover the additional time and effort it takes to collect from them or take a deposit upfront.
Most importantly, give customers an easy way to pay, which, in turn, may help you get paid faster.
Learn more about what to include on an invoice and strategies for keeping track of accounts receivable.
Most companies should use the typical invoice payment terms and payment methods for their industry. In other words, when you state your terms for payment, make sure they're something your customers will recognize. For example, manufacturers may expect 30-day payment terms, whereas the construction industry typically settles for 60- or 90-day terms, and government agencies prefer 90- or 180-day terms.
Companies selling commodities may expect payment within a few days at most. If you ship products to consumers, it's not uncommon to ask for COD (cash on delivery). Meanwhile businesses providing professional services, such as accounting or legal consulting, might allow up to 75 days for payment. And companies providing transportation might accept payments up to 120 days after the invoice is received.
The takeaway here: You shouldn’t do anything out of the ordinary or you could end up creating confusion and risk receiving a late payment. Talk to others in your industry, ask questions at trade shows, and do your research.
To learn more about invoice payment terms — and to download customized invoices for your industry — visit our Billing & Expenses resource page.
Invoice paid in full means the full amount billed on the invoice has been paid by the recipient, and there are no outstanding or remaining dues related to that specific invoice.
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