As a business owner, you are likely to handle invoices on a regular basis. Maybe send them to your clients. Or maybe you’ve received them in the past for making purchases. Regardless, if you plan to invoice your customers, you must create strong invoice payment terms.
What are the invoice payment terms?
A invoice It is a document that records a transaction between a buyer and a seller. And when you create an invoice for a customer, you set payment terms so that the person who receives the invoice knows:
- When the invoice payment is due
- Payment methods (for example, credit card, check, etc.)
- How to pay
- If there are penalties or late fees
- Other terms and conditions of the invoice
The invoice payment terms break down the invoice information to the customer to inform them when and how to pay you and if there are consequences for paying late. Basically, payment terms are the guidelines that customers use to pay you for your goods or services.
What are the standard bill payment terms? Many companies have 30-day deadlines in which payment is due 30 days after the invoice date. However, your company can choose the terms it wants.
Importance of billing terms in business
The ultimate goal of any business is to get paid. But you can’t expect to get paid if the terms of your bill are lax.
Its terms spell out the payment details for its clients. The strength of its terms can affect:
If you don’t put your bill payment terms on the table for your customers, you could end up finding your business struggling to stay afloat. Not to mention, you probably have to chase customers to pay, which no business wants to do.
Not being strict about payment terms and coming up with a solid plan can cause a lot of problems for your business. Therefore, it is best to adjust your terms to ensure that your business is paid.
8 tips for bill payment terms and conditions
Want to refine your small business invoice payment terms? Take a look at some tips to improve your terms and conditions.
1. Discuss the payment terms up front
The last thing you want to do is leave your customers in the dark about the invoice payment terms and conditions. So instead of avoiding payment terms questions like the plague, be transparent about your terms and conditions.
When entering a new customer relationship, be open and honest about your terms, especially if the customer asks. Be clear during the process about your payment terms and don’t wait until you submit the invoice to discuss them.
2. make sure your invoice includes the essentials
Your invoice should be clear as day to your clients. If a customer is having trouble understanding your bill, it may take longer for you to receive payment. Make sure to list all the essential details before submitting any invoice:
- Invoice date
- Invoice number, if applicable
- Due date
- Product or service information (eg, Quantity and price of each)
- Sales tax, if applicable
- Discounts, if applicable
- Comments and additional notes
- Your contact information
- Payment information (eg, how to pay, types of payment you accept, etc.)
- Late fees if invoice is not paid on time, if applicable
- Prepayment discount information, if applicable
Before submitting each invoice, check its accuracy to make sure you didn’t make any mistakes.
3. Invoice as soon as possible
To make sure you get paid promptly, invoice your customers as soon as possible. The sooner your customer receives an invoice, the sooner they can receive payment.
Submit an invoice as soon as you complete a job or deliver a product. To speed up the process, use online accounting software to create and track invoices.
4. Offer a variety of payment options
The more difficult it is for a customer to pay you, the more difficult it will be to get paid. To keep things simple for you and your customers, offer a variety of bill payment options to customers, if possible.
You can give customers the option of paying with a credit or debit card online or by mailing a check. And if you use software (eg, accounting program), you may be able to send customers a direct link to pay you with the click of a button (for example, email).
If you want to optimize your payment options, look for software that makes it easy for your customers to pay bills. And see if you can set up a way for customers to make automatic payments.
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5. Offer discounts for prepayment
To encourage customers to pay faster, consider offering discounts for prepayment. For example, you can offer a 2% discount if the customer pays the invoice within 10 days (ie 2/10 30 days net).
Offering customers discounts on prepayment invoices can also:
- Strengthen customer relationships
- Help build customer loyalty
If you plan to offer a discount, take some time to research common discount amounts to determine which prepayment discount is ideal for your customers and businesses.
6. Track late payments
Whatever you do, be sure to keep track of late payments. Otherwise, defaulters could go unnoticed and you could lose your payments.
You can keep track of late payments manually (for example, a spreadsheet) or by using accounting software. If you use accounting software, you can usually generate a report, such as a accounts receivable aging report, to see which bills are past due.
Analyze your report and determine which invoices are overdue and contact the customer for payment.
7. Have a plan when customers don’t pay
So what are you going to do if a the client will not pay for the services or products? Come up with a solid game plan in case this happens.
To get customers to pay overdue invoices, you can:
- Send bill payment reminders (or get software to do the push for you)
- Contact defaulters directly by phone, email, etc.
- Offer defaulters a payment plan to split bill payments
- Hire a collection agency
Whatever you do, make sure your plan is professional and comprehensive. You never know why a customer won’t pay (hint: they may have forgotten). Work with your late paying customers to find a solution that works for both you and them so that you don’t mess up the relationship.
8. Keep detailed records
As with anything in accounting, keep detailed records of estimates, invoices, bill payments, and information on late payments. That way, if something happens or you need to review an invoice, you can easily access the details through your records.
Example of invoice payment conditions
Let’s take a look at an example of an invoice with payment terms, shall we?
See an invoice example below. In it, you will see the payment term “Net 60”. This means that the customer has 60 days to pay the invoice from the date of the invoice. The higher the terms, the more time the customer will have to pay the invoice.
This article has been updated since its original publication date of September 27, 2016.
This is not intended to be legal advice; for more information, please Click here.