Invoice payment terms explained: How to get paid faster and avoid delays 

Understanding invoice payment terms is essential for smooth transactions and a steady cash flow. Setting clear payment expectations not only helps you get paid on time but also reduces misunderstandings and fosters trust with clients.  

In this guide, we’ll cover everything from standard payment terms to practical tips for tailoring them to your business needs—so you can keep your finances organised and your clients happy. 

Key takeaways on payment terms 

• They outline when and how clients should pay, including due dates, accepted methods, and discounts or late fees. 

• When clear and well-structured, they support timely payments, reduce misunderstandings, and improve cash flow. 

• Choose terms that align with your business’s cash flow needs, industry standards, and each client’s payment history. 

• Automated invoicing software can simplify creating, tracking, and managing payment terms, helping reduce manual errors and keeping payments on schedule. 

Here’s what this article covers 

What are payment terms on an invoice? 

What do payment terms mean on an invoice? Payment terms on an invoice tell your clients when and how they should pay for the products or services you’ve provided. Think of these terms as the guidelines that set clear expectations on both sides, outlining when payment is due based on the invoice or delivery date. 

Typically, payment terms will cover the payment deadline, accepted methods, early payment discounts, and any fees for late payments. By adding clear terms to your invoices, you’re helping your clients understand exactly how and when to settle up, which can make payments smoother and support a steady cash flow for your business. 

Why your business needs the right invoice payment terms 

Choosing the right payment terms for your invoices gives your business a solid financial foundation. When your payment terms are clear and well-structured, you can better anticipate cash flow, plan for expenses like taxes, and set the stage for growth. 

Setting clear payment terms helps to avoid misunderstandings and reduce the risk of late payments—your clients know exactly when and how to pay. This clarity also helps build trust, fostering stronger, longer-term business relationships with your clients.  

For B2B transactions, particularly when terms are often more complex, well thought-out terms provides the flexibility and transparency needed to keep everything running smoothly. 

23 types of invoice payment terms every business should know 

Here are the most common invoice payment terms, along with their abbreviations and meanings, to help you set clear payment expectations on your next invoice: 

1. Cash In Advance (CIA) 

Your client pays the total amount before you start any work or deliver goods. This term is handy for high-risk transactions or when you need a commitment upfront. 

2. Cash Before Shipment (CBS) 

Like CAD, but specifically for goods being shipped. Your client pays in full or part before you send their order, giving you peace of mind before items leave your hands. 

3. Cash On Delivery (COD) 

Payment happens when goods or services are delivered. This method—often called “payment on receipt”—works well for quick, on-the-spot payments. 

4. Cash With Order (CWO)  

Clients pay when they place their order. This is common for custom or high-value items where production or delivery only starts after receiving payment. 

5. End Of Month (EOM)  

Payment is due by the last day of the month when the invoice was issued. It’s a straightforward term that keeps things on a predictable monthly schedule. 

6. Payment In Advance (PIA)  

Covers any payment made before you start the work. This could be a full payment or just a deposit to cover initial costs. 

7. Prompt Payment Discount (PPD)  

Encourages faster payments. For instance, giving a 2% discount if clients pay within 10 days shows appreciation for early payment. 

8. Cash Against Documents (CAD)  

Typically used in international trade, it requires the buyer to pay in full before accessing essential shipping documents, ensuring security in overseas transactions. 

9. Month Following Invoice (MFI)  

Payment is due the month after the invoice date, usually on the 15th or end of the month. This gives your client a bit more time to arrange payment. 

10. Net 7/10/30/60/90  

These “Net” terms specify the number of days clients have to pay after the invoice date, such as Net 30 or Net 60. It gives flexibility based on your relationship with the client. 

11. 1% 10 Net 30  

This term offers a 1% discount if the client pays within 10 days; otherwise, the full amount is due in 30 days. It’s a helpful way to encourage prompt payment without being too restrictive. 

12. Interest invoice  

An interest invoice adds any extra charges for overdue payments. Issued separately, it’s a helpful nudge for clients to stay on track with future payments. 

13. Early payment  

Offering early payment terms lets you reward clients who settle their invoices before the due date, typically with a small discount to improve cash flow. 

14. Contra payment  

A contra-payment offsets the payment with the value of your client’s goods or services. This is common when there’s an exchange of services between two businesses. 

15. Terms of sale  

This spells out the key details of your transaction, like delivery dates, payment due dates, and any late fees, making sure everyone knows what to expect. 

16. Payment plan details  

This term breaks down how and when payments are made, like weekly or monthly instalments. It’s ideal for longer projects or services spread out over time. 

17. Payment method  

Specifies how clients can pay, such as bank transfer, credit card, or cheque. Giving a few options can make it easier for clients to meet deadlines. 

18. Shortened payment period  

Shortening the payment period reduces the time clients have to pay, often used when businesses want to adjust their cash flow or tighten credit terms. 

19. Upfront payment  

Payment is required before any work begins. It can be a flat rate or a percentage of the total invoice, providing funding for initial expenses. 

20. Overdue fees  

Overdue fees apply if payment isn’t made by the due date. These fees can be a percentage or a flat rate charged periodically to encourage timely payments. 

21. Net monthly account  

This term means payment is due at the end of the month following the one in which the invoice was sent. It’s common in industries with recurring monthly services. 

22. Letter of credit  

A bank-backed promise often used in international deals. It assures payment to the seller as soon as the goods are shipped. 

23. Bill of exchange  

A written agreement to pay a set amount on a future date. Often backed by a bank, it ensures payment in larger transactions. 

When to create or update invoice payment terms 

Clear and well-structured payment terms are essential for smooth invoicing and a healthy cash flow. Setting terms that align with your sales cycle and financial goals encourages timely payments and reduces misunderstandings. 

Ideally, establish your payment terms during contract discussions and include them on every invoice. Update them as needed if your payment process changes to ensure clients always know what’s expected, helping you maintain prompt and reliable payments. 

Using accounts receivable and accounts payable software can simplify this process, allowing you to easily create invoices and track any changes. Whether you’re setting up or updating a customer invoice or managing invoices from suppliers and vendors, you can handle it all within a single, unified platform. 

How to choose the best invoice payment terms and conditions 

Setting the right payment terms can provide a strong foundation for your business, helping you maintain cash flow and build trust with clients. Here are some key factors to consider when choosing the best invoice payment terms for your needs: 

Monitor your cash flow needs 

If your cash flow dips at certain times, you might want to set terms that encourage quicker payments. Options like upfront payments, deposits, or instalments can help keep money coming in when you need it most. For instance, consider requesting 50% upfront or partial payments at set milestones to stabilise cash flow throughout a project. 

Consider industry standards 

Each industry has common payment expectations, which clients are often familiar with. Researching what’s standard in your field can help you set terms that clients understand and trust. For example, while instalments are typical for event planning or construction projects, other services, like consultations, may call for payment on delivery. 

Review client payment history 

Adjusting payment terms based on your client’s payment record can help you manage risk. If a client has a history of paying late, you might consider stricter terms like asking for upfront payments or cash on delivery. On the other hand, reliable clients with timely or even early payments could be offered more flexible terms or small discounts to reward their consistency. 

Include late fees and interest terms 

Late fees and interest charges are effective motivators and can be invaluable if you ever need to enforce your terms legally. To protect your business, include these details in any contract and ensure they’re clear on your invoice. This way, clients understand the consequences of late payments from the start. 

Determine the right terms based on invoice size 

For larger invoices or long-term projects, consider asking for a deposit or setting a payment schedule to manage financial risk. This approach can help your business cover upfront costs and avoid potential issues with delayed payments on high-value work. 

How to write payment terms on an invoice 

Clear payment terms on your invoice help clients know exactly how and when to pay, making the payment process smoother for everyone. Always start by ensuring your invoice includes all essential details, as this lays the foundation for a professional, easy-to-understand document. 

Here are some steps to follow when writing payment terms that set clear expectations: 

State the payment due date: always include a specific due date to avoid any confusion. For example, instead of just “Net 30,” you could write “Payment due on 30th June 2024.” 

List accepted payment methods: make it as easy as possible for clients by listing all accepted payment options—like bank transfer, credit card, or cheque—so they can choose the most convenient method. 

Specify deposits or upfront payments: if the work requires a deposit or initial payment, clearly state this amount and when it’s due. This helps avoid delays by letting clients know what’s needed to start the project. 

Outline payment plans: for larger or ongoing projects, break down payments into instalments with specific due dates. This keeps things organised and helps clients budget for each stage. 

Add contact information for any questions: include a contact for billing questions or disputes so clients know exactly who to contact if they have questions about the payment. 

Example of payment terms on an invoice 

To see how to effectively help set client expectations, here’s a look at some payment terms examples on an invoice. This sample includes a Net 30 term, indicating payment is due 30 days from the invoice date. It also specifies a late fee policy, encouraging clients to pay on time. 

Adding well-defined, visible, and easy-to-read payment terms ensures clients know exactly when payment is expected and any consequences for late payments. This clarity is key to helping you get paid promptly. 

[Include a mock-up of an invoice] 

Common challenges with invoice payment terms 

Even with well-defined terms, invoicing comes with some common challenges that can impact your business: 

Misunderstandings: if details like due dates or late fees aren’t clearly outlined, it can cause confusion or disputes, ultimately slowing down the payment process. 

Late and missed payments: flexible terms, such as end-of-month or net payment terms, can increase the risk of late or missed payments, leading to cash flow and revenue issues. 

Losing customers: while flexible payment terms can pose a risk for your business, requiring upfront payment may discourage some clients from working with you, especially for new relationships. 

Managing and tracking invoices: with multiple clients and varied payment terms, keeping invoices organised and tracking payments can be challenging. Without a streamlined system, this can lead to delays and cash flow issues. 

10 best practices for handling your invoice payment terms 

Developing the right payment terms for your business and your clients can make invoicing smoother and improve cash flow. Here are some best practices to help you establish and manage your invoice agreement: 

1. Understand your customer’s needs 

The more you understand your customers’ cash flow, payment capabilities, and financial stability, the better you can tailor terms that work for both sides. Learning about their payment habits can help you create terms that encourage on-time payments without putting undue pressure on your clients. 

2. Offer flexible payment options 

Offering a range of payment methods—such as bank transfer, credit card, or online payment—makes it easier for clients to settle invoices. The more convenient you make it, the more likely clients will pay on time. 

3. Incentivise early payments 

Encourage clients to pay sooner by offering a small discount for early payments, such as a “2% discount if paid within 10 days.” This can improve your cash flow and foster goodwill with clients. 

4. Add late fees 

Late fees can motivate clients to pay on time and help cover any costs you incur due to payment delays. Specify the late fee terms in your invoices, like “A 1.5% late fee applies to overdue balances,” to ensure clients know the consequences of paying late. 

5. Shorten payment terms if needed 

If you’re facing cash flow challenges, consider shortening payment terms. For example, switching from Net 60 to Net 30 can help reduce the delay between work completion and payment. 

6. Use polite and professional language 

Maintaining a friendly, professional tone on invoices encourages positive client relationships. Use polite language, such as “Thank you for your prompt payment,” and avoid overly harsh terms. This balance keeps the focus on collaboration while encouraging timely payments. 

7. Invoice as soon as possible 

Send invoices promptly after completing work. Sending an invoice on the same day the job is done keeps your work fresh in the client’s mind and makes payment feel more immediate. 

8. Track and follow up on payments 

Set up a system to track payments and send reminders if a due date approaches without payment. For regular late-payers, a reminder a week before the due date can gently nudge them to pay on time. 

9. Make payment terms easy to understand 

Use clear and simple language when describing payment terms. Avoid industry jargon, and instead, use plain English for terms like “Net 30” or “Due by 30th June 2024.” Simple, direct language makes it easy for clients to know what’s expected. 

10. Be open to compromise 

Sometimes, a little flexibility can help secure a client. For example, if you offer Net 15 terms but a reliable client requests Net 30, meeting them halfway may help you build a long-term relationship without straining your cash flow. Knowing how to negotiate payment terms effectively can help you find solutions that work for both parties. 

Manage your invoice payment terms with automated accounting software 

Automated invoicing and accounting software makes it easy to customise, track, and manage payment terms, so you can keep cash flow healthy and payments on time—all with minimal effort. 

With automated invoicing, you can quickly generate and send invoices, set up customised payment terms, and automate calculations for due dates, early payment discounts, and late fees. This reduces the chance of manual errors, simplifies workflows, and helps ensure timely, accurate payments. 

Automated software also lets you track invoices in real time from any device, giving you complete visibility into payment statuses wherever you are. Need to remind customers about an approaching due date? You can schedule automatic reminders to help reduce late payments. 

Ready to simplify your invoicing process with powerful automation and in-built integrations? Explore our online invoicing software to see how it can help you manage payment terms more effectively. 

Invoice payment terms FAQs 

What are payment terms? 

In B2B transactions, payment terms outline the agreed-upon conditions for how and when customers must make an invoice payment for goods or services. They typically include the payment due date, accepted payment methods, and details like early payment discounts or late fees for overdue balances.  

Clear payment terms help set expectations, reduce misunderstandings, and support timely payments—creating a smoother transaction process and keeping cash flow steady. 

What are the standard payment terms on an invoice? 

Standard payment terms are the typical timeframes businesses set for clients to pay invoices, though they can vary depending on industry, location, and company policy.  

In the UK, a 30-day payment term from the invoice date is common, giving clients a month to settle the bill. However, certain industries may expect shorter or longer terms—for example, construction often uses 60- or 90-day terms. 

Can I offer different payment terms for different clients? 

Yes, you can tailor payment terms to meet the needs of individual clients. For trusted, long-term clients, you might offer extended payment periods, while new or late-paying clients may require shorter terms or an upfront deposit.  

Customising payment terms helps you manage cash flow effectively while building strong client relationships—make sure to communicate any specific terms in writing to avoid misunderstandings clearly. 

Can I change the payment terms after sending an invoice? 

Changing payment terms after an invoice is sent can lead to confusion, so it’s best to finalise terms beforehand. If a change is necessary, communicate with your client promptly, explain the reason, and confirm the new terms in writing.