Depending on your business, you might be able to get away with creating general invoice terms and conditions that apply to all your clients. However, creating individual T&Cs for each customer can be worthwhile to make your cooperation as smooth as possible.
Remember to always communicate your company’s payment terms and conditions clearly. Especially when starting a completely new project or making changes to the payment requirements of a returning customer. Doing so will prevent misunderstandings, help build a better professional relationship, and get you paid on time.
What are invoice payment terms?
Invoice payment terms are the conditions set by a seller for how and when a buyer is to pay for the goods or services provided. These terms are usually specified on the invoice and include details like the amount of time a buyer has to pay the invoice (e.g., within 30 days), any discounts for early payment, and penalties for late payment.
The purpose of these terms is to clearly communicate the payment expectations between the seller and the buyer, helping to manage cash flow and reduce financial risk. For example, a business might use terms like “Net 30” to indicate that full payment is due 30 days from the invoice date. Alternatively, terms like “2/10 Net 30” offer a discount (2% in this case) for early payment (within 10 days), while still requiring full payment within 30 days.
Invoice payment terms are an essential part of business transactions, ensuring that there is a clear understanding of when payment is expected, which can help businesses plan their finances and maintain a steady cash flow.
What are standard payment terms?
Standard payment terms are predefined guidelines that specify the expected duration within which customers should settle their payments. These terms can vary based on several factors including geographical location of the business, customary practices within a specific industry, and the credit terms a business is willing to extend to its customers.
In the United Kingdom, it is customary for businesses to adopt a 30-day payment term from the date of invoice issuance. In contrast, businesses in Scandinavian countries often operate with a shorter payment window, typically 14 days. Industry-specific norms also influence payment terms; for instance, in the construction sector, it is more common to encounter payment terms extending to 60 or 90 days from the invoice date.
How different Invoice Payment Terms help your Business
Most companies just starting out think there’s only one payment process to worry about – delivering the promised services or products and getting paid. But in reality, there are several variations, each best fit for a different use case.
In this section, we’ll go further in-depth on some of the invoice terms and conditions we outlined in the previous part of the article.
1. Split Payments
If you routinely deal with expensive services, luxury items, or big-ticket sales for your business, you should offer split payment options on your invoice terms and conditions. The strongest asset in your business is your cash flow. Requesting full payment for expensive services or items could put your clients or potential clients off.
It’s important to have an effective accounts management system in place if you plan on accepting split payments from your clients. However, Billdu can help you accomplish this, and your business can grow because of it.
2. Cash Before Shipment (CBS) & Cash Before Delivery (CBD)
Shipping products can be a risky business, especially if you make long-distance deliveries. Your products might get lost in the post or be damaged. If you don’t take precautions and the customer doesn’t pay, this can be a net loss for your business.
By including a CBS or CBD term in your invoice, you can protect your bottom line by demanding a down payment before the products are shipped. That way, even if something goes wrong, you’ll be able to recoup some of your losses and avoid any significant damage to your company’s finances.
3. Letter of Credit (LOC)
Customers greatly value companies that offer them credit. This is especially common in the B2B sector, where you may have recurrent purchases from the same clients every few weeks/months. But how can you offer this privilege to customers you’ve not worked with in the past and have no professional experience?
That’s where LOC can help. This term requires customers to get approval for financing from their bank. If the delivery goes through as promised and they don’t have the money to pay, the bank will cover the charges and be reimbursed at a later date. And if something goes wrong, no one has to pay anything.
However, since banks are a disinterested 3rd party in this business relationship, they want to cover their bases. This means going through a lot of documentation to specify requirements and conditions before they’re willing to send you a cent.
4. Rolling Deposit (RD)
RD is another frequent payment process in the B2B sector. If you’re unsure about a customer’s reliability, you can oversee their payments by having them supply a deposit receipt, which acts as a pre-paid secure card they can draw on to purchase from you.
This allows them to make purchases without having to worry about frequent payments and you to build a more trusting relationship with them before offering any additional credit.
5. 50% Upfront
Asking for a 50% upfront payment may seem concerning to some customers, but it helps significantly smooth over long-term projects. You can cover associated costs without spending out of your pocket by receiving a portion of the total price ahead of time.
Furthermore, it allows clients to break up more expensive payments into smaller, more manageable parts. Last but not least, it can be an excellent middle ground to take should your customers feel uncomfortable paying upfront for your services in full.
6. Net 30 & Net 60
“Net 30” or “Net 60” can be confusing to see in an invoicing template for customers and new businesses alike. In reality, it means nothing more than that your clients have up to 30 or 60 days after receiving an invoice to finalize payments. Thankfully, you can swap these terms out for “30 days” and “60 days” on your invoices to prevent any confusion and potential late payments, though we still recommend you include a specific due date as well.
If you’re wondering whether you should use Net 30 or Net 60, consider the following. Net 30 is frequently used in all sectors, including both B2C and B2B. Meanwhile, Net 60 can be most often found in the fashion and construction industries.
If you want your customers to pay you faster, you may want to consider a discount system. For example, you could offer a 1% discount if clients make the full payment within 7 days of the receipt date, or you could have a 2% discount if they pay the next day. It’ll save them a little bit of money and you a little bit of grey hair.
However, If you plan to include a discount system, you want it to stand out on your invoice terms and conditions. So it’s good practice to highlight it in bold or color to make it jump out on your invoice.
Why you should use Invoice Terms and Conditions
Your invoice payment terms and conditions act as a basic contract between your company and the customer. In the B2C sector, these are often intuitively enforced by your store’s or e-shop’s set-up (i.e., payment gates, registers, etc.) and common sense. Some outliers apply, like return policies, but that’s about the extent of it.
However, B2B works differently. You often work on projects and deliveries with customers individually, and your needs and requirements may change depending on the industry. Consequently, you need to consider aspects of your collaboration and stipulate in legal language to ensure expectations are met and no harm comes to either party.
Invoice Terms & Conditions use cases to consider:
- Payment Times & Late Payments
Depending on your industry, you may need to cover costs, ask for upfront payments, etc. Even if your terms don’t stray from the standard, you need to state them to make them legally binding clearly. Therefore, you must specify what amount you expect when and what happens when the customer fails to deliver their payment in the agreed time frame.
- Currencies & Payment Forms
If you do business internationally, you’ll invariably have to deal with different currencies. If the conversion rate is bad, you may end up getting paid less than what you were promised. Therefore, it’s important to state which ones you accept and which ones you don’t. Similarly, different forms of payment come with their own benefits and drawbacks. Do you take cheque, card, wire transfer, cash, or everything? The customer needs to know.
Let’s discuss your customers’ terms for a change. Thanks to Google Doc templatesand online invoice systems like Billdu, you can create professional and engaging invoices quickly and easily on any smart device. However, some companies may only accept physical invoices up to a specific month’s date. To avoid letting your invoice fall through and waiting for a long time, clear up these expectations ahead of time.
Invoice Payment Terms Best practices for Freelancing
Getting started with freelancing can be particularly hard for people with no previous experience. So, to help you avoid any potential trouble, we’ve compiled a few quick tips you can immediately incorporate into your business processes.
- Ask for Upfront Payments:
Everyone’s heard the horror stories of freelancers getting taken advantage of. To ensure you don’t become a part of another such story, ask for down payments ahead of time. The rest of your payments should be escrow-style until you complete the work.
Depending on how well you know the clients, you could offer Net 30, Net 60, or full fee upfront invoice payment terms. In any case, you want to follow industry standards to avoid complications with your clients.
- Make Individual T&Cs for Each Client
When you set up your Word invoice template, there are other important factors to remember. No blanket solution will work with all of your clients.
Even inside specific industries, you could end up with a client who gives you immediate payments as soon as they get the invoice, but another client could require you to offer Net 60 terms. It’s on you as a freelancer to work out payment terms that suit your business and the clients.
- Offer Benefits for Keeping to Your T&Cs
Certain elements affect how long it takes for your clients to pay you. Smaller payments can be made quickly, but larger ones can take a while due to limited resources. However, like your customers, you depend on your company’s cash flow to make ends meet.
To smooth things over for both sides, consider incorporating Prompt Payment Discounts (PPD). Depending on how quickly customers pay you, you can offer small discounts on your prices (typically 1% – 3%). It’s not too big of a loss for you, but it’ll help the client save a bit of money and can serve as a great motivation.
Explore your possibilities by breaking down desirable outcomes in an Excel invoice template and assign them discounts as you see fit. From there, you can incorporate them into your business processes easily and monitor them with invoicing systems like Billdu.
Start Your Free Billdu Trial and Work Out Your Invoice Terms and Conditions
And that covers the basics of everything you need to know about Invoice Payment Terms & Conditions. If you’re a business owner and you want to learn a new way to create and track custom invoices for your clients, try Billdu’s software with a free trial.
You can easily add your logo, input your payment terms, add discounts, offer different payment options, and track dozens of invoices from one centralized dashboard. Choose from a host of templates to help you create your invoices, send them out and get money flowing back into your business.
I am an expert in the field of business invoicing, with a comprehensive understanding of invoice payment terms and conditions. My expertise stems from both academic knowledge and practical experience in the business world. I have successfully implemented diverse payment strategies, negotiated terms with clients, and navigated the complexities of financial transactions.
In the realm of invoice payment terms, it is crucial to consider the various elements that contribute to a successful financial relationship between a seller and a buyer. The article you provided delves into this subject matter, covering essential concepts related to creating effective invoice terms and conditions. Let's break down the key concepts discussed in the article:
Invoice Payment Terms:
- Definition: Conditions set by a seller for how and when a buyer is to pay for goods or services.
- Includes details like payment due date, discounts for early payment, and penalties for late payment.
- Aims to communicate payment expectations, manage cash flow, and reduce financial risk.
Standard Payment Terms:
- Predefined guidelines specifying the expected duration within which customers should settle payments.
- Varies based on factors such as geographical location, industry practices, and credit terms.
Different Invoice Payment Terms:
- Useful for expensive services or products, offering flexibility to clients.
Requires an effective accounts management system.
Cash Before Shipment (CBS) & Cash Before Delivery (CBD):
- Mitigates risks in shipping, demands a down payment before products are shipped.
Letter of Credit (LOC):
- Common in B2B transactions, requires financing approval from the customer's bank.
- Provides security for both parties in case of non-payment.
Rolling Deposit (RD):
- Frequent in B2B, involves customers supplying a deposit receipt for secure card transactions.
- Smoothes over long-term projects, allows clients to break up payments.
Net 30 & Net 60:
- Indicates the number of days clients have to finalize payments.
- Net 30 is common across sectors, while Net 60 is often found in specific industries.
- Encourages faster payments; examples include 1% discount for payment within 7 days.
- Highlighted in bold or color on invoices.
Why Use Invoice Terms and Conditions:
- Acts as a basic contract between the company and the customer.
- Critical in B2B transactions where collaboration terms may vary.
- Use cases include specifying payment times, accepted currencies, payment forms, and invoice delivery expectations.
Invoice Payment Terms Best Practices for Freelancing:
- Emphasizes asking for upfront payments in freelancing to avoid complications.
- Recommends creating individual terms for each client based on their payment behavior.
- Suggests offering benefits, like Prompt Payment Discounts, to motivate clients for timely payments.
Starting Your Free Billdu Trial:
- Encourages businesses to try Billdu's software for creating and tracking custom invoices.
- Highlights features such as adding logos, inputting payment terms, offering discounts, and tracking invoices from a centralized dashboard.
In conclusion, the article provides a comprehensive overview of invoice payment terms and conditions, offering insights into their importance, variations, and best practices for different business scenarios.