Payment Terms: Selecting the Best Terms for Your Business
What are the best payment terms to include on an invoice? Invoicing software usually defaults to Due on Receipt, and industries like manufacturing and retail standardly offer discounts for early payment. But which terms will get YOUR business paid the fastest?
When selecting standard payment terms for your business, go for the option that will optimize cash flow while maintaining good client relationships. Here are four common payment terms to consider:
1) Due on Receipt
With this option, payment is due immediately when the client receives the invoice. While ideal for businesses needing fast cash flow, this method can be too rigid. Clients may not be prepared to send payment at the moment they receive an invoice and could forget to return to pay without reminders from you. Due on Receipt is best for one-time services or products. When nurturing longer client relationships, other payment methods may be more productive.
2) Due in 14 Days
This term allows clients a two-week window to pay after receiving an invoice. Clients may prefer this flexibility to send payment when they’re ready without immediately being considered late. A 14-day window reduces the risk of delayed payments, compared to longer terms, and can be a good middle ground for businesses that need prompt payments but want to maintain customer goodwill.
3) Discount for Early Payment: 2/10 Net 30
Under 2/10 Net 30, clients earn a 2% discount for paying within 10 days, otherwise, the full amount is due within 30 days. There could be endless variations on these terms created by customizing the discount amounts and payment lengths. Discounts for early pay may lead to quicker payments, benefiting both your cash flow and client satisfaction. Just remember to evaluate how the amount of discount will impact your bottom line.
4) Discount for Auto-pay
Offering a discount for auto-pay is a great incentive for clients to set up recurring payments for repeat services. Automation can help ensure timely payments while fostering long-term working relationships. The discount could be small and still effectively encourage consistent, hassle-free payments, which benefits both parties. You may choose to offer these terms in addition to one of the other options above.
In Summary
"Due on Receipt" can be quick but rigid, "Due in 14 Days" offers balance, "2/10 Net 30" incentivizes quick payments, and a "Discount for Auto-pay" promotes consistency. Choosing the right payment terms depends on your cash flow needs, overall profitability, and existing client relationships.
This post evaluated four common payment term options. Feel free to select one of these or to go with an even more specialized approach. The best way to get paid quickly is to customize your revenue process in a way that makes paying you EASY and INTUITIVE to your clients.
Want Even More Ways to Get Paid Faster?
If you’re ready to get invoices paid even faster, I’ve put together a free pdf checklist of unique strategies and practical tips to improve your invoicing process and collect payments faster without risking the client relationship.
Click here to view or download the checklist.
TL;DR
Payment terms are an often overlooked way to make paying you intuitive to clients!
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