What Are Payment Terms?
Payment terms tell your client when and how you expect to be paid. They’re the rules of the game — set them clearly upfront, and you’ll avoid awkward conversations later.
Common Payment Terms
Due on Receipt
Payment is expected as soon as the client receives the invoice. This is the fastest way to get paid and works well for one-off projects or retail transactions.
Net 15
Payment is due within 15 days of the invoice date. A good middle ground — gives the client a short window without making you wait too long.
Net 30
Payment is due within 30 days. This is the most common term in business-to-business transactions. It’s seen as professional and reasonable by most clients.
Net 60
Payment is due within 60 days. Larger companies and government organisations often request these longer terms. Be cautious — this can strain your cash flow.
50/50 Split
Half upfront before work begins, half on completion. Popular with freelancers and agencies for larger projects. It reduces your risk and helps fund the work.
Milestone-Based
Payment tied to project milestones (e.g., 30% on signing, 40% on draft delivery, 30% on completion). Common for long-term projects.
How to Choose the Right Terms
Consider these factors:
- Your cash flow needs. If you have regular expenses (rent, salaries, subscriptions), shorter terms keep cash flowing in steadily.
- Industry norms. Some industries have standard terms. Going against the norm can make you seem inflexible or inexperienced.
- Client relationship. New clients might get stricter terms until they prove reliable. Long-standing clients might earn more flexibility.
- Project size. Larger projects often warrant milestone payments or deposits to manage your risk.
The Cash Flow Impact
Payment terms directly affect when you receive money. Here’s a simple way to think about it:
If you invoice $5,000 with Net 30 terms and your client pays on time, that’s a full month where you’ve done the work but haven’t been paid. With Net 60, it’s two months.
Now multiply that across all your clients. If you have $20,000 in outstanding invoices on Net 60 terms, that’s $20,000 of your money sitting in someone else’s bank account.
Shorter terms = faster cash. Faster cash = less stress.
Quick Tips
- State your terms on every invoice. Don’t assume clients know your expectations.
- Discuss terms before starting work. Include them in your proposal or contract.
- Offer early payment incentives. A small discount (e.g., 2% off if paid within 10 days) can motivate faster payment.
- Be consistent. Changing terms arbitrarily can confuse clients and complicate your bookkeeping.
In Fastbooks, you can set default payment terms for your business and override them for individual clients, so each invoice automatically includes the right due date.