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How to Use Invoice Payment Terms to Protect Your Business

Timely payments keep cash flowing, and money in hand now is worth more than it will be in the future.

Payment terms specify how, when, and how your customers or clients will pay your business. Or when they should, at least.

Invoice payments are frequently accompanied by payment terms, and for good reason. They are a written statement that outlines your expectations for payment, including when the customer must pay you and the consequences for late payments.

If the work provided includes copyrights, you should specify when that will transfer (usually on receipt of payment.) Transparent payment terms make it easier for clients to fully understand your invoicing process and can help ensure that you get paid, and get paid on time.

Typical invoice payment terms include the following:

  • Date of an invoice
    The full amount owed
    The due date and the timeframe within which your client must pay the whole amount due
    Conditions that call for a deposit or advance payment
    Financial information (so the client/customer can pay you)
    A list of acceptable means of payment

You should also mention a few more things on your invoice. You and the customer, and your accountant, will be able to keep track of invoices in reverse order if you include an invoice number and include your contact details on every invoice. By doing so, the customer knows who to contact if there are any issues, and you can handle the issue fast. Additionally, you can choose the address to which the client should email payment receipts.

Common Standard Payment Terms

Let’s review some of the most typical payment terms that small business owners should bear in mind when creating invoices:

Due on receipt: The payment is expected as soon as the invoice is received.
PIA: Payment in advance
Net 7, 10, 15, 30, 60, or 90: Payment expected within 7, 10, 15, 30, 60, or 90 days after the invoice date
EOM: End of month
21 MFI: 21st of the month following invoice date
COD: Cash on delivery
CND: Cash next delivery
CBS: Cash before shipment
CIA: Cash in advance
CWO: Cash with order
1MD, 2MD: Monthly credit payment of a full month (or two-month) supply
Stage payments: Set payments over a period of time, agreed upon by the client and seller
Forward dating: Invoicing for payment to be made after the customer receives the order
Accumulation discounts: Discounts on large orders
Partial payment discount: When a seller offers a partial discount due to low cash flow
Rebate: Refund sent to the buyer after they’ve made a purchase

Why is Defining Payment Terms So Important?

Defined payment terms are crucial because accurate cash flow estimates depend on understanding when and how much money will arrive in your account.

Research reveals:

80% of small business owners worry about their business cash flow
More than half of small business owners that have cash flow issues they attribute to delayed customer payments.
62% of small business owners are unsure of their monthly revenue in detail.
58% of small business owners claim that they have made bad business decisions as a result of cash flow concerns.

You can manage your company’s growth, plan for taxes, and keep it operating smoothly with the aid of accurate cash flow estimates. You can make sure that clients pay on time by using a clear, professional invoice. And in addition, prior to beginning work, or providing goods, it’s important to verify that you and your customers have a clear understanding of the terms of payment.

How to Use Payment Terms

Payment terms are essential when negotiating a contract. Payment terms should maximize how quickly your clients pay you and minimize inconvenience for your customer. A good set of payment terms should benefit both parties.

As you start to invoice customers, remember that your payment terms should match your business goals. Selecting appropriate payment terms is an important step toward building and maintaining a healthy business. Always include your payment terms on your invoices, but discuss them with your clients first.


You can require customers to pay in advance for services. Advance billing can improve your cash flow and reduce the risk of losing money. If you have a wedding photography business, for instance, you may want to avoid running the risk of cancellation. So you may want your customers to pay in full upfront. Some businesses offer discounts to customers who pay in full upfront.

50% upfront

You may choose to receive a partial payment of 50% of the total cost of a customer’s purchase. Partial payments can provide working capital you may need to complete a customer’s project. They may also benefit your customers by breaking up their costs into smaller payments. Smaller payments for your customers can benefit your business as well, in the form of increased sales and higher order value.

A 50% deposit may also be a compromise between businesses and customers when a customer is unable or unwilling to pay in full upfront. That way, both parties take on an equal risk. If you choose these terms, be sure to define when you’ll receive the remaining 50%.

Installment agreements

You can also choose to accept partial payments through payment plans that break your customer’s payments into smaller installments. As an example, you may choose to divide the customer’s total cost into a series of smaller monthly payments. Installment agreements are similar to line-of-credit payment terms, except they’re cash-based.

Some companies split up big projects into milestones, and the customer pays upon each milestone. You may base installment agreements on time—every three months, for example—or upon delivering a specific part of the project.

Lines of credit

Line-of-credit payment terms offer buyers credit toward the products and services they purchase. Customers can then repay the balance on the agreed payment schedule. Offering credit through your business comes with some risks, as the customer could default. Larger organizations typically use this type of customer financing.

Immediate payment (payment due upon receipt)

Immediate payment refers to a transaction for which payment is due as soon as you deliver goods or services. Examples of immediate payment terms include “cash on delivery” (COD) or “payable upon receipt.” You may negotiate into the contract that you can repossess goods if the customer does not provide immediate payment.

Net 7, 10, 15, 30, 60, or 90

These terms refer to the number of days in which a payment is due. For instance, Net 30 (or N/30) means that a buyer must settle their account within 30 days of the date listed on the invoice. Using Net 30 terms, if you date your invoice March 9, clients are responsible for submitting payment before April 8.

Choosing net payment terms may inconvenience you as a business owner, as you’ll have expensed the entire project without receiving income. However, customers may prefer these terms. Try to find a period that works for both you and your client.

Subscriptions and retainers

Subscription and retainer payment terms require customers to pay regularly, such as monthly or annually. Typically, businesses on retainer agreements issue invoices to clients on a recurring basis. Automating invoicing for recurring payments can help.

Early payment

You can provide customers with an incentive to pay early. For example, consider offering a 5% discount if the customer pays the total balance in full before the due date. Early payments are a win-win. Customers receive a discount on your goods or services, and you’ll have enough capital to complete the project.

Need help with your small business finances? For the professional that wants to better understand the financial health of their business, K.K. Chartered Professional Accountant is a trusted advisor.

Since 2008, K.K. CPA has helped countless clients in Hamilton, Ancaster, Kitchener-Waterloo, and the GTA grow their businesses. And we’d love to do so the same for you. Contact us today to learn more.