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.
It's important for your customers know the details of what they bought from you — amounts, dates, accepted payment methods, descriptions, and quantities — but it’s just as important for customers to clearly understand how and when to pay you.
That’s why invoice payment terms are crucial.
An invoice is a legal document that provides proof of sale. By including the right invoice payment terms, customers can more easily proceed with their payments. Also, third parties (think a lawyer, judge, or arbitrator) can determine if a customer is behind on payment.
When it comes to payment terms on an 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 where standard payment terms come into play.
Standard payment terms outline when you expect to receive payment from your customers. You can have different standard payment terms depending on the industry you’re in and the customer you’re billing. However, your payment terms on any single invoice should always be clear, understandable, and consistent.
You should agree to the terms in advance (when you take the order or sign the contract), and your invoice should reflect those terms.
Types of standard 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 type of popular business invoice payment term, which gives your customers a choice to pay early and receive a minor discount.
Check out our invoice templates, plus learn how to create an Excel invoice.
Here are types of payment terms for businesses:
Not sure how to write payment terms and conditions for an invoice? 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, then 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.
Get helpful strategies for keeping track of accounts receivable.
Most companies should follow their designated standard payment terms by industry. In other words, when you state your terms for payment, make sure they're something your customers will recognize. For example, most manufacturers 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).
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 invoicing — and to download customized invoices for your industry — visit our Billing & Expenses resource page.
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