Choosing payment terms

Payment terms set the day money is due. They do not set the day it arrives, and the gap between those two is where the actual problem lives. It is worth choosing a term deliberately, and worth being clear-eyed about how much of the outcome the choice controls.

What the common terms mean

Whether those days are calendar days or working days, and what happens when the due date lands on a weekend, is a counting question rather than a choosing one. How due dates are counted sets out the rules, and the invoice due date calculator applies them and prints the date to put on the document.

Shorter terms, and when they are ignored

Shortening your terms works on payers who pay when they are asked: individuals, small businesses, anybody where the person receiving the invoice is also the person with the bank login. For them, Net 14 genuinely arrives sooner than Net 30.

It does very little against a payables department. Larger organisations pay on a cycle — a run every week, or twice a month — and an invoice that arrives after the cut-off waits for the next one regardless of what it says. Against that machine, "due on receipt" is not a shorter term; it is a term that is ignored, and the only thing it reliably does is make your first chase awkward, because the invoice was technically late on day one.

The practical rule: match the term to who is paying. Short terms for small payers. For a large client, find out the payment run and the cut-off, and treat the term as a formality — getting the invoice in before Thursday is worth more than anything printed on it.

Early payment discounts

Offering 2% for payment within ten days converts a receivable into cash sooner. It is a real option and an expensive one: the discount is small in absolute terms but it buys you twenty days, and expressed as an annual rate that trade is far more costly than most people expect — frequently more than borrowing the same money. Early payment discounts works that annual rate out, and the early payment discount calculator runs it for your figures. Run it once before you make this a standing offer.

Two things to watch. Clients who take the discount are usually the ones who were going to pay on time anyway, so you may be paying for behaviour you already had. And a discount claimed late — paid on day 20, with the 2% deducted — is a conversation nobody enjoys. If you offer one, say in the terms that it applies only to payment actually received within the window.

Late payment charges

Interest or a fixed fee on overdue invoices is worth having in your terms, mostly for what it does before it is ever charged: it makes the due date look like a real date rather than a suggestion. Many jurisdictions also give a statutory right to interest on commercial debts whether or not your terms mention it; late payment interest links the UK and EU law. It is still worth asking an accountant once about where you trade.

Whether to actually charge it is a commercial decision about the relationship, not a bookkeeping one. Late payment fees covers how a flat fee differs from interest. If you do charge, the late payment fee calculator and the late payment interest calculator work out what the invoice is worth now. The one rule that matters: the charge has to have been in the terms before the work started. A fee that first appears on an overdue invoice is a fee you are inventing after the fact.

The three things that beat the term

Invoicing promptly. An invoice sent the day the work finishes with Net 30 on it is paid sooner than one sent three weeks later with Net 14. This is the largest lever and it is entirely yours.

Sending it to the right place. An invoice sitting in your contact's inbox is not in the payment system. Get the accounts payable address before you need it, and copy your contact rather than the other way round.

Getting paid before the end. On a long or large job, terms are almost irrelevant compared with billing in stages — see deposits and progress billing.