Payment terms are not just paperwork — they determine cash flow, credit risk, and whether you fund your customers' operations or vice versa. This guide explains the common terms, what they mean economically, and when each is appropriate.
The Common Terms at a Glance
| Term | What it means | Typical use |
|---|---|---|
| Due on Receipt | Payable immediately | Retail, very small services |
| Net 7 / Net 14 | Due 7 or 14 days from invoice date | Freelancers, small services |
| Net 30 | Due 30 days from invoice date | Standard B2B |
| Net 45 / Net 60 | Due 45 or 60 days from invoice date | Enterprise customers, larger contracts |
| 2/10 Net 30 | 2% discount if paid in 10 days; otherwise net 30 | Cash acceleration on B2B |
| 50/50 | 50% upfront, 50% on completion | Custom services, longer projects |
| Milestone billing | Phased payments tied to deliverables | Agencies, construction, consulting |
| EOM | End of Month — all invoices due last day of month | Simplifies AP for some customers |
| CIA / CWO | Cash in Advance / Cash with Order | High-risk customers, custom production |
How to Choose
- New customer? Shorter terms (Net 14, or deposit + balance) until they prove pay-on-time behaviour.
- Trusted long-time customer? Net 30 is industry standard. Net 45 only if your cash flow can absorb the gap.
- Large enterprise customer? Many require Net 45 or Net 60 by policy. Build the longer payment cycle into your pricing — the cost of capital is real.
- Project work? Milestone billing protects you from doing weeks of work on credit.
- Custom or high-cost work? Always take a deposit. Non-refundable on cancellation.
Making Payment Terms Stick
- State them clearly on every invoice, every contract, every order confirmation.
- Include a late-fee clause — even if you rarely enforce it, the deterrent matters.
- Send invoices the same day work completes — every day delayed is a day added to payment.
- Automate reminders at 7 days before due, on due date, 7 days after, 14 days after.
- Pause new work for customers with overdue invoices — the strongest leverage you have.
The Economics of Early Payment Discounts
A 2/10 Net 30 discount is equivalent to lending the customer money at ~36% APR if they don't take it (2% over 20 days extra credit = ~36% annualised). Most well-run finance teams take the discount; many small businesses don't and effectively pay short-term loan rates. As a supplier offering it, you're paying 2% to get paid 20 days faster — usually worth it if cash flow is tight or growing fast.
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