5 popular invoice payment terms

An invoice is a confirmation that a service has been performed or a product shipped. While that may be the official definition, let’s not kid ourselves – we send invoices because we want to get paid. And to get paid, you need some clear payment terms on every invoice you send.

Yes, it’s important that your clients know the details of what they’ve bought from you – the amounts, dates, descriptions, quantities, etc. And it’s important they know how they can pay you – PayPal, cash or bank transfer. But what’s really important is laying out the rules for payment.

An invoice is a legal document that provides a proof of sale. Without any payment terms, how can anyone know if a client is behind on payment ?

Here are some popular terms you might want to use :

• Due in 14 days. This is probably the most common payment term. It indicates the payment is due in 14 calendar days from the invoice date. It’s not uncommon for clients – particularly larger businesses – to negotiate 30, 45 or 60 day terms so they have time to get your invoice through their finance approval systems.
• Upon receipt. While you can ask for this, a lot of clients ignore it. They expect 14 or 30 days as a minimum. However, if you can get clients to agree to this when you first agree on the sale, it can be a great way to keep your cashflow clear and steady.
• 50% upfront. This is a common one for service-based small businesses and freelancers. By asking for 50% before you begin work, you’re making sure the client is fully committed, and you’re reserving your time for their project.
• 100% upfront. This one’s less common and mostly limited to retainers – agreements to complete certain work or a certain number of hours for a client each month.
• Overdue fees. While interest on late payment is a more common payment term for small businesses operating overseas, it’s not often seen here in Australia. You are entitled to specify and enforce an overdue fee but it might not go down so well with your clients and could impact your future business with them. Instead of a late fee, consider offering a discount on payment made upon receipt, or 10 or 15 days before the due date.

You can have different terms for payment, depending on your client. But no matter what terms you use, they must be clear, understandable and consistent. You should agree on the terms when you accept the order or sign the contract so clients are aware of what to expect and they’re not surprised when it comes time to pay.

To make invoicing easy, set up your payment terms in invoice templates. If you have multiple terms, create multiple templates. It’s far faster and easier to pick from existing than create from scratch each time.

Enforcing your invoice payment terms

If you take your terms seriously, your clients will too. Be clear of the consequences of a client not paying on time, whether it’s an overdue fee or pausing any other projects you’re working on for them until payment is made. If you’re invoicing for very large amounts, you might consider outsourcing to a formal collection process, but the cost and time involved might not be worth your while.

For clients who regularly pay late, you may want to consider increasing your prices to cover the additional time and effort it takes to follow them up. Depending on the size and value that client brings to your business, you might want to consider terminating your relationship with serial late payers.