Invoice Payment Terms: Boost Small Business Cash Flow

what are the payment terms on an invoice

Small businesses usually have set payment terms for invoices. These terms are present on all the bills which acknowledge the quick payments and payment methods clients can adopt for making payments. This is done to maintain the flow of cash to carry on the business processes.

This article covers:

What Are The Payments Terms On An Invoice?

 Business bills usually carry payment terms that give information about when and how to complete payment. There are many invoice payment terms, these are:

PIAIt stands for ‘Payment In Advance’. You let your client know you expect them to pay the total amount due for a project in advance.
CIAIt refers to ‘Cash In Advance’. You’re specifying both when you expect a payment, i.e. before work begins, and you’re specifying how the client can pay you, i.e. in cash or through check.
Upon ReceiptIt refers to the expectation of immediate payment when the client receives your invoice.
Net 7Payment is due seven days from the invoice date.
Net 21Payment is due 21 days from the invoice date.
Net 30Payment is due 30 days from the invoice date. It is a common payment term for small businesses and freelancers.
EOMPayment is due at the end of the month in which the client receives it.
15 MFIPayment is due on the 15th of the month following the invoice date. MFI stands for Month Following Invoice.
2/10 Net 30This is a variation of Net 30 that offers a discount for early payment. It refers that the payment is due within 30 days of the invoice date, but you offer a 2 percent discount off the invoice for paying within 10 days.
50% UpfrontThe client must pay 50 percent of the total invoice amount in advance. It is common for big projects.

Late Fees For Unpaid Invoices:

If you want to make your invoice payment terms enforceable then you should add late fee charges in it. It will increase the chances of on-time payment. Late payment fee terms should follow state laws. According to an estimate the late fee charges lie between 1 and 3 percent of the total invoice amount, per month.

What Are The Best Invoice Payment Terms For Business?

The purpose of invoice payment terms is to ensure the fastest payment from the client. It must have the following qualities:

1.Use Polite Wordings:

Using polite words in your invoices not only helps you maintain good relations with your clients but also ensures the quick payment of dues on payment deadlines. You can add phrases like ‘Please’, ‘Thank you’, ‘Grateful’ etc.

2.Set Deadlines:

You must add specific deadlines for payment in an invoice. Using unclear words can lead to confusion and delay in payment. So be specific while communicating the deadlines. For example, Payment Due June 12, 2020 (is the right way).

3.Cut-short The Due Date For Payment:

Shortening the payment due date is helpful, you can evaluate whether you receive payment faster or not. Clients can use online payment methods to complete their payment within the due date. The common billing period is 30 days, so you can cut-short the period to 20 days or so.

4.Add Late Fee Charges:

It works in the case when a client is habitually not paying the charges on time. Even a small percentage of the late fee can make a great difference. You can add 2% to 5% of late fee charges to the invoice, per month.

5.Offer Flexible Payment Methods:

If you allow your client to choose any payment method, it works and you can get your payment on time without any worry. Give them choices for making payments such as cash, credit, or check methods.

6.Offer Rewards For Early Payment:

If you offer incentives on early payments then most of your clients will pay you before the due date which is very helpful for maintaining the cash flow of business.

What Payment Methods You Should Accept?

If you are an owner of a small business and want to establish good terms with your clients, you should offer multiple ways of payment to them. It will increase the likelihood of receiving payment on time. 

You can offer different possible ways to your clients, some of them are:

  • Cash
  • Credit Cards ( all types )
  • Check
  • Online payment
  • Mobile payments
  • Bitcoin 
  • Other Cryptocurrencies

Browse our blog for more useful resources for your small business.

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