What are invoice payment terms?
Invoice payment terms let the customer know about any important Terms & Conditions of the sale, as well as how they should make the payment. They should be clearly stated on your invoices to avoid any misunderstandings and to help you get paid faster.
This article explains what payment terms are, what to include in them, and how invoicing software can assist you in this process. An example of an invoice with payment terms is also provided.Start invoicing for free
Payment terms can include a variety of different information and what’s included can vary from business to business. However, standard invoice payment terms should include:
Any special conditions of the sale.
Instructions on how the customer should provide payment.
Simply put, your invoice payment terms should include anything that the customer should be aware of in regards to the payment.
You should also clarify if the payment should be made via bank transfer, cash on delivery (COD), direct debit, cheque, online payment link or any other method of your choosing.
Providing detailed payment terms can help you receive payment quickly and avoid unnecessary back-and-forth communication with the customer. Payment terms can also support you in any invoice disputes or legal action that may arise as a result of overdue invoices.
HMRC might also use this information to check that your invoices are compliant and that your payment terms are within the law. For instance, in the UK, late fees for B2B transactions can be charged up to 8% of the total due, plus the Bank of England’s base rate for B2B sales.
Therefore, invoice payment terms can support your business’s cash flow, support you with disputes, and keep your invoices compliant in the eyes of HMRC.
Invoice payment terms wording is very important. If you mainly sell to consumers, it would be beneficial to write out your payment terms in an easy to understand way. However, if you mainly supply your products or services to other businesses, there are several abbreviations that you can use within your payment terms.
Common invoice payment terms abbreviations include:
EOM: end of month
CIA: cash in advance
COD: cash on delivery
PIA: payment in advance
Net 7: payment 7 days after the invoice issue date
15 MFI: 15th of the month following the invoice issue date
There are many more abbreviations that could be used, but you should consider if your customer will understand them. If in doubt, take the time to write your invoice payment terms in full sentences to minimise the risk of any misunderstandings.
As an example of invoice payment terms, Sam offers existing customers a 5% cash discount if payment is made on the invoice within 10 days, even though the due date is 30 days from the invoice date. In the payment terms, Sam would write “5/10 net 30 days” to explain the terms of the cash discount.
Sam may go further to avoid misunderstandings and write: “5% cash discount if payment is made within 10 calendar days from the issue date. The cash discount does not apply if payment is made between days 11 and 30”.
In the UK, it doesn’t matter where exactly the payment terms are stated on your invoice. However, they should be clearly visible and intelligible.
Below, you will find an example of a plumber’s invoice with payment terms created with SumUp Invoices.
As you can see, the terms and conditions are clearly stated at the bottom of the invoice and advise the customer about the details of the discount as well as how to make the payment.
SumUp Invoices is free invoicing software that can help you create and send invoices in less than 1 minute. We offer a free, compliant invoice template where you can simply select the required information.
There is also a text box for your invoice payment terms in which you can save the terms for all future invoices, or customise them for each individual invoice.
In addition, all invoices will automatically include an online payment link so your customers can pay securely online and you can receive your money faster.Start invoicing for free