Payment Terms Set the Rules
Payment terms define when you get paid, whether there's a discount for paying early, and what happens when someone doesn't pay on time. They're the financial handshake between you and your client.
Get them right and cash flows predictably. Leave them vague — or don't set them at all — and you'll spend your time chasing payments instead of doing billable work.
This is the complete reference. Every standard term, what it means, and when each one makes sense.
Net Terms: The Complete List
| Term | Meaning | Best For |
|---|---|---|
| Due upon receipt | Pay immediately when the invoice arrives | Retail, small transactions, new/risky clients |
| Net 7 | Due within 7 calendar days | Quick-turnaround services |
| Net 10 | Due within 10 calendar days | Small recurring invoices |
| Net 15 | Due within 15 calendar days | Freelancers, small businesses |
| Net 30 | Due within 30 calendar days | Standard B2B (the default worldwide) |
| Net 45 | Due within 45 calendar days | Mid-size clients with slower AP cycles |
| Net 60 | Due within 60 calendar days | Enterprise, government contracts |
| Net 90 | Due within 90 calendar days | Manufacturing, wholesale, long-cycle industries |
"Net" means calendar days from the invoice date, not business days. Net 30 issued on June 1 is due July 1, weekends and holidays included. If the due date falls on a non-business day, payment on the next business day is customary.
Early Payment Discount Terms
These terms offer a discount if the client pays before the standard deadline. The format is always: discount%/qualifying days, Net full-term.
| Term | Meaning | Annualised Return for Buyer |
|---|---|---|
| 1/10 Net 30 | 1% off if paid in 10 days; full in 30 | ~18% |
| 2/10 Net 30 | 2% off if paid in 10 days; full in 30 | ~36% |
| 2/10 Net 60 | 2% off if paid in 10 days; full in 60 | ~15% |
| 3/10 Net 30 | 3% off if paid in 10 days; full in 30 | ~55% |
The annualised return column shows why savvy AP departments take these discounts — 2/10 Net 30 is equivalent to earning 36% on their money. If you're going to offer a discount, 2/10 Net 30 is the sweet spot: attractive enough to change behaviour, small enough to preserve your margins.
Other Term Abbreviations
Beyond net terms, you'll occasionally see these:
COD (Cash on Delivery) — payment when goods arrive. Common in logistics and wholesale. Rarely used for services.
CBD (Cash Before Delivery) — payment before goods ship. Used for high-risk or first-time orders.
CIA (Cash in Advance) — full payment before work begins. Common for custom manufacturing and bespoke services.
EOM (End of Month) — payment due by the last day of the month the invoice was received. Invoice received June 5? Due June 30.
MFI (Month Following Invoice) — payment due by the end of the month after the invoice date. Invoiced June 5? Due July 31.
Contra — mutual debts are offset. If you owe your client $2,000 and they owe you $5,000, you invoice the net $3,000.
How to Choose: A Practical Framework
The right payment terms depend on your leverage, your cash needs, and the client relationship. Here's how to think about it:
Cash flow is tight? Use shorter terms. Net 15 or DUR. Don't finance your client's cash flow when yours is under pressure.
New client, no track record? Start strict. 50% deposit + Net 15 on the balance. Loosen terms after they've proven reliable.
Enterprise client dictating Net 60+? Accept it if the contract is worth it, but build the cost of delayed payment into your rate. If Net 30 is normal and they want Net 60, you're effectively giving them a 30-day interest-free loan — price accordingly.
Recurring client with good payment history? Net 30 is fine. They've earned it.
Large project (>$10K)? Milestone billing with deposits. Don't let $15,000 ride on a single net-30 invoice.
For freelancer-specific advice, see our freelancer invoicing guide.
Late Payment Penalties
Your terms should specify what happens when the deadline passes. Options:
Percentage interest: 1-2% per month on overdue balances (12-24% annually). This is the most common approach. Some jurisdictions cap the rate — the UK's Late Payment of Commercial Debts Act allows 8% plus the Bank of England base rate (for commercial/B2B debts).
Flat fee: $25-50 per late invoice. Simple, but doesn't scale with invoice size. A $25 fee on a $500 invoice is punitive; on a $50,000 invoice it's meaningless.
Service suspension: halt ongoing work until the overdue balance is cleared. Include this clause in your contract.
Where to Put Terms on Your Invoice
State terms in two places. Near the top: "Payment Terms: Net 30 | Due Date: July 1, 2026" — this is for the AP clerk who processes invoices by the dozen. Near the bottom in the notes: "Payment is due within 30 days of the invoice date. A late fee of 1.5% per month applies to balances overdue by more than 7 days" — this is for the person who actually reads the invoice.
Our invoice generator includes a payment terms field with common presets (Net 15, Net 30, Net 60, DUR) and a custom option.