No one likes fine print – not even those who have to write it. Invoice payment terms and conditions are particularly problematic, especially for small businesses trying to set them up for the first time. Unfortunately, they’re vital in ensuring that your clients understand your payment terms and schedule and that you get paid on time.
So to make sure your bottom line doesn’t suffer, we’ve created this article about understanding invoice payment terms. On top of all the necessary explanations, you’ll also find invoice payment term examples below, which you can customize to your company’s unique needs.
And now, without further ado, let’s jump right in.
Key Takeaways
- Invoice payment terms clarify payment schedules, improving cash flow management
- Various terms like “Net 30” offer flexibility for different business scenarios
- Diverse options such as split payments cater to business and customer needs
- Legal language in invoices formalizes terms, preventing misunderstandings
- Tailoring terms for each client improves operations and relationships
The Evolution of Invoice Payment Terms
But first, a little history lesson. In the olden days, companies used to physically mail their clients copies of their recurring invoices at the end of each month and give them a couple of weeks to finalize payments. And while this approach is still viable today, it’s painfully slow.
On top of the payment process, it takes time for the physical invoice to be delivered. Then, you need to consider that some customers will want to send you a cheque back instead of a wire transfer or an online payment. And that’s assuming neither of these documents gets lost in the mail.
Thankfully, we have better ways of doing this nowadays. Online invoice templates let you create and generate custom invoice terms and conditions for each customer. Then, all you need to do is send the finished document electronically.
You can also set up options for instant online or card payments to make the process even faster. For even better results, you can include an option that will automatically share a PDF version of the invoice terms and conditions if the customer pleases.
Ultimately, that’ll allow you to get paid faster, prevent anything from getting lost on the way, and even help you cut down on your paper waste.
Most Important Payment Terms and Conditions for Invoices
Individual invoice payment terms and conditions are categorized by universally recognized codes. There are dozens to consider, but for the purposes of this article, we’ll outline the ones most helpful and commonly used by businesses of all sizes.
The invoice payment terms and conditions you should consider include:
- 15 MFI: Abbreviation for “Month Following invoice”, this means you expect the customer to pay their dues by the 15th of the month following the invoice issue date.
- 30 MFI: Abbreviation for “Month Following invoice”, you expect the customer to pay their dues by the 30th of the month following the invoice issue date.
- Cash Account – No Credit: You expect the customer to make all their payments in cash, and you won’t be offering any credit.
- Cash Account – Letter of Credit: You expect the customer to make their payments in cash but will accept credit confirmed by a bank.
- Upon Receipt: You expect the customer to pay immediately after receiving your invoice.
- EOM: Abbreviation for “End of Month”, you expect the customer to pay by the end of the month after receiving your invoice.
- Net 7: You expect the customer to pay 7 days after the invoice date.
- Net 10: You expect the customer to pay 10 days after the invoice date.
- Net 30: You expect the customer to pay 30 days after the invoice date.
- Net 60: You expect the customer to pay 60 days after the invoice date.
- Net 90: You expect the customer to pay 90 days after the invoice date.
- PIA: Abbreviation for “Payment in Advance”, you expect the customer to pay their dues upfront before you start working on the project / deliver the products.
- CIA: Abbreviation for “Cash in Advance”, you expect the customer to pay their dues upfront before you start working on the project / deliver the products by cash.
- 50% Upfront: You expect the customer to pay 50% of the total price upfront before you start working. It’s very common for long-term projects.
- CWO: Abbreviations for “Cash with Order”, you expect the customer to pay when ordering from you before you start working on the project / delivering the products.
- RD: Abbreviation for “Rolling Deposit”, means the customer can pay for your services with a limited credit you offer them by supplying a deposit receipt. Essentially, this works like a pre-paid secure card.
- CBS: Abbreviation for “Cash Before Shipment”, means you expect to take a down payment before shipping products / services to offset costs and get more security.
- CND: Abbreviation for “Cash Before Delivery”, means you expect to take a down payment before delivering products / services to offset costs and get more security.
- COD: Abbreviation for “Cash on Delivery”, means that the customer only has to pay after receiving the promised products / services. In this case, the risk is on the provider’s side. If something goes wrong, the customer may decide not to pay.
- CONTRA: Also known as a “Contra Payment”, is used when two companies that owe each other do business. A portion of the payment is provided for by services / products, and the remainder is paid.
- Stage Payment: Also known as “Process Payment”, this is used for long-term projects. Payments are scheduled according to milestones specified ahead of time and only paid after each is met and confirmed. It’s also common for penalties to be applied if milestone delivery dates are delayed.