What are Invoice Payment Terms?

Invoice payment terms are an integral part of any bills issued by a business to its customers. These terms state the date by which the invoice is to be paid and any discounts that may apply to an early payment. The use of these terms allows a business to forecast when cash payments will arrive, as well as when to start collection activities against customers who have not yet paid. Invoice payment terms are not always the same for every customer. Larger customers may insist on longer payment terms, while more problematic ones may be required to pay cash in advance or upon delivery of the associated goods. Another option is to offer an early payment discount, to encourage customers to pay within a short period of time.

To ensure that customers follow invoice payment terms, a company can begin collection activities immediately thereafter, or charge a late fee (usually with a grace period of a few days).

Example of Invoice Payment Terms

An example of payment terms is Net 10, which means that the customer should pay the full amount stated on the invoice within 10 days of the invoice date. Another example is 2/10 net 30, which means that the customer can take a 2% discount from the invoice amount if it pays within 10 days. Otherwise, it should pay the full amount within 30 days of the invoice date. Occasionally, the terms will be EOM, which means that payment is due by the end of the current month.