Invoice Payment Terms: Complete Guide

Payment terms define when your client must pay your invoice. Clear payment terms are essential for maintaining cash flow and getting paid on time. Learn the most common payment terms and how to choose the right ones for your business.

Common Payment Terms Explained

Net 30

Meaning: Payment is due 30 days after the invoice date

Example: Invoice dated January 1 is due January 31

Best for: Established B2B relationships, corporate clients

Pros: Industry standard, gives clients time to process payment

Cons: You wait a month to get paid, potential cash flow issues

Net 15

Meaning: Payment is due 15 days after invoice date

Example: Invoice dated January 1 is due January 16

Best for: Smaller projects, new clients

Pros: Faster payment than Net 30

Cons: Some clients expect Net 30 as standard

Due Upon Receipt

Meaning: Payment expected immediately upon receiving invoice

Example: Client should pay same day or within 1-2 days

Best for: Small jobs, new/unproven clients, retail/direct consumers

Pros: Fastest payment

Cons: May not be practical for large companies with payment processing procedures

Net 60

Meaning: Payment due 60 days after invoice date

Best for: Large corporations, government contracts

Pros: May be required for certain clients

Cons: Long wait for payment, cash flow challenges

50% Deposit, 50% on Completion

Meaning: Half payment upfront, half when project completes

Best for: New clients, large projects, custom work

Pros: Reduces risk, ensures commitment, improves cash flow

Cons: May discourage some clients

Payment in Advance

Meaning: Full payment before work begins or products ship

Best for: High-risk clients, custom orders, first-time clients

Pros: Zero payment risk

Cons: Not standard in most industries, may lose clients

End of Month (EOM)

Meaning: Payment due at the end of the current month

Example: Invoice on January 15 is due January 31

Best for: Recurring monthly billing

21 MFI (21st of Month Following Invoice)

Meaning: Payment due on the 21st day of the month following invoice

Example: January invoice due February 21

Best for: Corporate accounts with specific payment cycles

How to Choose Payment Terms

Consider Your Cash Flow Needs

If you need money quickly to cover expenses, choose shorter terms (Net 15, Due Upon Receipt). If you can afford to wait, Net 30 is industry standard.

Consider Your Industry

• Retail/Direct Consumer: Due Upon Receipt or Payment in Advance
• B2B Services: Net 30 is standard
• Large Corporations: Often require Net 30 or Net 60
• Government: Net 30-90 typical
• Construction: Progress payments with retainage

Consider Client Relationship

• New Clients: Shorter terms or deposits reduce risk
• Established Clients: Can extend longer terms as trust builds
• Problem Payers: Require deposits or payment in advance

Consider Project Size

• Small Jobs (Under $500): Due Upon Receipt
• Medium Projects ($500-$5,000): 50% deposit + Net 15
• Large Projects ($5,000+): Milestone payments or progress billing

Additional Payment Terms to Include

Late Payment Fees

Specify penalties for late payment to encourage timely payment:

"Invoices not paid within terms are subject to a 1.5% monthly late fee (18% APR)"

Early Payment Discounts

Encourage faster payment by offering discounts:

"2/10 Net 30" = 2% discount if paid within 10 days, otherwise due in 30 days

Accepted Payment Methods

List all ways clients can pay:

• Bank transfer/wire transfer
• Check
• Credit card
• PayPal
• Venmo/Cash App

Payment Instructions

Provide specific details:

• Bank account number and routing number
• PayPal email address
• Check mailing address
• Payment portal link

Setting Your Payment Terms

Step 1: Choose Your Standard Terms

Decide on default payment terms for your business. Net 30 is most common for B2B, Due Upon Receipt for consumers.

Step 2: Include Terms in Contracts

Specify payment terms in service agreements before work begins, not just on invoices.

Step 3: State Clearly on Invoices

Display payment terms prominently on every invoice: "Payment Terms: Net 30" or "Due Date: March 15, 2025"

Step 4: Communicate Expectations

Discuss payment terms with new clients upfront to avoid misunderstandings later.

Step 5: Be Consistent

Use the same terms for similar clients/projects. Inconsistency causes confusion.

Enforcing Payment Terms

Send Reminders

Email reminders a few days before due date, on due date, and for overdue invoices.

Follow Up Promptly

Contact clients immediately when payment becomes overdue. Don't wait weeks.

Apply Late Fees

If you've stated late fees, apply them consistently to demonstrate you're serious about terms.

Stop Work

For ongoing projects, pause work if payment becomes significantly overdue.

Consider Collections

For seriously overdue payments, send formal demand letters or engage collection agencies.

Payment Terms by Business Type

Freelancers

Recommended: 50% deposit, 50% on delivery or Net 15

Protects you from non-payment while keeping terms reasonable

Contractors

Recommended: Progress payments (25% deposit, 25% at milestones, 25% at completion, 10% retainage)

Maintains cash flow for materials while protecting client

Consultants

Recommended: Monthly retainer paid in advance or Net 15

Ensures ongoing compensation for ongoing work

Service Businesses

Recommended: Due Upon Receipt or Net 7

Quick turnaround appropriate for service work

B2B Companies

Recommended: Net 30

Industry standard for business-to-business transactions