Setting Payment Terms: A Guide for Small Businesses

Clear payment terms protect your business and encourage clients to pay on time. Learn how to set effective payment terms that work for both you and your clients.

Common Payment Terms Explained

Net 30 (Most Common)

Meaning: Payment is due within 30 days of the invoice date.
Best for: Established client relationships, standard business transactions.
Pros: Industry standard, gives clients reasonable time to process payment.
Cons: 30-day wait for payment can strain cash flow.

Net 15

Meaning: Payment is due within 15 days of the invoice date.
Best for: Smaller projects, clients with good payment history.
Pros: Faster payment improves cash flow.
Cons: Some clients may push back on tighter deadlines.

Due Upon Receipt

Meaning: Payment should be made immediately upon receiving the invoice.
Best for: Small invoices, new clients, or clients with payment issues.
Pros: Fastest payment option.
Cons: Can feel pushy; not standard for many industries.

Net 60/Net 90

Meaning: Payment is due within 60 or 90 days.
Best for: Large corporations with slow payment processes, government contracts.
Pros: May be necessary to work with certain clients.
Cons: Long wait for payment; significant cash flow impact.

50% Upfront, 50% Upon Completion

Meaning: Half paid before work starts, half upon project completion.
Best for: Large projects, new clients, custom work.
Pros: Protects against non-payment; improves cash flow during project.
Cons: Some clients may be hesitant to pay upfront.

How to Choose the Right Payment Terms

Consider Your Cash Flow Needs

If you have tight cash flow, shorter payment terms (Net 15 or Due Upon Receipt) may be necessary. If you can afford to wait, Net 30 is more client-friendly and industry-standard.

Evaluate Client Relationships

• New clients: Shorter terms or partial upfront payment
• Established clients with good payment history: Net 30 or longer
• Clients with past late payments: Due Upon Receipt or upfront payment

Industry Standards Matter

Research what's typical in your industry. Going against industry norms may cost you clients. In consulting and professional services, Net 30 is standard. In retail or e-commerce, payment upfront is expected.

Enforcing Payment Terms

Include Late Payment Penalties

Example clause:

"Invoices not paid within 30 days will incur a late fee of 2% per month on the outstanding balance."

This incentivizes on-time payment and compensates you for delayed cash flow.

Offer Early Payment Discounts

Example clause:

"2% discount if paid within 10 days (2/10 Net 30)"

This encourages faster payment without appearing pushy.

Send Payment Reminders

• 7 days before due date: Friendly reminder
• On due date: "Payment due today" notice
• 3 days after due date: First overdue notice
• 7 days after due date: Formal late payment notice with late fees

Payment Methods and Instructions

Make it easy for clients to pay by offering multiple payment methods:

• Bank Transfer (ACH/Wire): Low fees, direct deposit
• PayPal/Venmo: Fast, familiar, but with fees (~3%)
• Credit Card: Convenient for clients, but higher fees
• Check: Traditional option for some clients

Include clear, step-by-step payment instructions on every invoice.

Sample Payment Terms Clauses

Standard Net 30 Terms

Payment is due within 30 days of the invoice date. Please remit payment via bank transfer or check. Late payments are subject to a 2% monthly interest charge. If you have any questions regarding this invoice, please contact us at [email/phone].

Upfront + Completion Terms

50% deposit is required before work begins, with the remaining 50% due upon project completion. Final deliverables will be released upon receipt of final payment.

Aggressive Terms (for problem clients)

Payment is due upon receipt. Overdue accounts will be charged 5% monthly interest. Accounts over 30 days past due may be referred to collections. Work may be suspended for accounts with outstanding balances.

Automate Your Payment Terms with InvoicePro

Set your preferred payment terms once, and InvoicePro will automatically include them on every invoice. No more retyping or forgetting important clauses.