The Best Invoice Payment Terms to Avoid Past Due Invoices

In one of our previous posts, we’ve already discussed the subject of dealing with late payments. However, learning how to prevent your business from getting into such a situation is even more efficient solution.

So, for this blog post we’ve analyzed various invoice payment terms that will enable you to receive your invoiced payments on time.

Defining the rules beforehand

The first thing we suggest is to define your invoice payment terms beforehand. For instance, you can make an official, all-round payment guide and use it for all your projects.

As opposed to that, you can only note down the payment basics for your internal use. They’ll serve as your own set of rules when you’re negotiating the payment conditions with a new client.

In the contemporary business practice, there are several common rules pertaining to payment deadlines and times.

  • 30-day payments – Officially stated as Net 30 payments, they should be made in 30 days’ time after the reception of the invoice. For instance, you send your invoice on June 1st and ask the recipient to make the payment within 30 days. This period is a reasonable option since it will give the other party enough time to check the functionality of the purchased service or product and prepare the assets for the payment during that period.
  • 60-day payments – Marked as Net 60, this payment option allows clients to make their payments within 60 days after they receive the invoice. It’s a practical option for eCommerce and other niches in which buyers need some time to receive and test the purchased items. On the other hand, there’s no need for such long payment periods in some niches, such as the IT-field or Web design. Things happen fast here, so the payment process can be accelerated, as well.
  • Discount percentage – Some businesspeople like to give early payers a discount. If you think this will come in handy for your payers, highlight the discount percentage in your invoice. For instance, you can write 3/20, Net 60. This means that the payer will get a 3% discount if they make their payment within 20 days from the invoice date. In this case, the payment deadline is 60 days from the invoice date.

Formulating the invoice payment terms

You can formulate your invoice payment terms in many different ways. However, only a few of them will ensure avoiding past due invoices. In line with that, you should never be vague and unclear during the negotiations. Moreover, your project estimate and the invoice should contain the agreed terms.

So, it’s essential to make things clear from the very beginning. Here are a few practical wording tips that will help you dodge some lexical traps.

  • No “payment upon receipt” – This is an ambiguous formulation that leaves too much space for individual interpretation. You might consider that paying upon receipt means an immediate payment. However, the other side could stretch that period of time to several weeks or even months. Still, you might use this line in the invoices you send to your old, trustworthy clients.
  • Politeness matters – You should never underestimate the power of emotional intelligence in business. Hence, close the invoice with a simple “Thank you for your trust” or “It was a pleasure working with you”. Adding a sympathetic or even approving tone in each of your invoices will improve your chances of being paid before the invoice date.
  • Use simple phrases – Not all the businesspeople you’re going to work with have the knowledge of accounting and economy. Therefore, you’d better use simple phrases when it comes to invoice payment terms. For example, instead of Net 60 or any other number of days, just write down “Payment due in 30 days” or write the exact date.

Making an effort to simplify and yet intensify your invoices should ensure getting paid on time. As a result, you’ll be able to pay all your accounts payable without any delays and maintain a smooth cash flow.

Offering numerous payment gateways

When you’re discussing the invoice payment terms of collaboration with your potential client, it’s crucial to name the payment options you use for payments. That way, every single customer will know in advance how they can pay you. This is extremely important, since that will enable them to prepare the assets and transfer them to the most convenient account for that payment.

Everybody knows about Stripe, PayPal, or ACH, so make sure to add some or all of these options to your option list. While you can add some other payment solutions, as well, don’t go too far away from mainstream. When it comes to payments, it doesn’t pay off to be a hipster.

Apart from that, let’s not forget about enabling your domestic clients to pay you via the good old bank transfer. This way you will avoid some transaction fees, plus you’ll have the money on your account in a jiffy.

Down payments and milestones

When you’re setting the invoice payment terms with your clients, you need to discuss the matter of down payments and milestones.

Insisting on getting paid in advance might look unusual to some clients, but it’s the best way to protect yourself in the online business environment. Therefore, bring the topic of front money on the table when you’re negotiating the conditions of your collaboration.

However, don’t be too aggressive with your demand. You can ask from 5% to 20% of project deposit, depending on the total value of the project. By doing so, you’ll ensure that the client doesn’t leave the project without paying you.

As for milestones, they’re extremely convenient for both parties in every business collaboration. They’ll ensure that you have a financial and temporal frame within which you work. The other side will find it easier to meet their part of the deal in a more relaxing way.

When you’ve reached an agreement about the milestones, prepare invoices with those dates, so that you can send them when the time comes.

Conclusion

If you set the rules of your collaboration in advance, there’s no surprise for any of the interested parties.

Also, when those terms are followed by numerous payment options, your client will get an incentive to make their payments within the due date.

Finally, communicating the invoice payment terms with your clients in a polite manner will leave a positive impression on them. All these strategies will improve your business image and ensure timely payments for your products and services.

Mark Thomasson
Mark is a biz-dev hero at Invoicebus - a simple invoicing service that gets your invoices paid faster. He passionately blogs on topics that help small biz owners succeed in their business. He is also a lifelong learner who practices mindfulness and enjoys long walks in nature more than anything else.
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