Setting clear payment terms is crucial for healthy cash flow. Learn how to structure payment terms that work for both you and your clients.
One of the biggest challenges small business owners face is getting paid on time. The secret? Crystal-clear payment terms established upfront.
Why Payment Terms Matter
Clear payment terms:
- Set expectations from day one
- Reduce payment disputes
- Improve cash flow predictability
- Establish professionalism
- Provide legal protection
Common Payment Term Options
Net Terms
Net 30: Payment due within 30 days of invoice date (most common)
Net 15: Payment due within 15 days
Net 60: Payment due within 60 days (typically for larger clients)
Immediate Payment
Due on Receipt: Payment expected immediately
Cash on Delivery (COD): Payment when service is delivered
Early Payment Incentives
2/10 Net 30: 2% discount if paid within 10 days, otherwise due in 30 days
This encourages faster payment while maintaining standard terms.
Advance Payment
50% upfront, 50% on completion: Common for large projects
Full payment upfront: For new clients or small jobs
Late Payment Policies
Always include late payment terms:
- Late fees: 1.5% per month (18% annual) is standard
- Grace period: 5-7 days before late fees apply
- Collection policy: What happens after 60-90 days
How to Communicate Payment Terms
- In your estimate: Include terms before work begins
- In your contract: Make terms legally binding
- On your invoice: Restate terms clearly
- In initial discussions: Discuss expectations verbally
Industry-Specific Considerations
Freelancers: Net 15 or Net 30 is standard
Contractors: Progress payments tied to milestones
Consultants: Retainer + hourly/project fees
Retail: Immediate payment
Remember: The best payment terms are ones that both you and your client can live with. Invoice ASAP helps you set up and track payment terms automatically.