Payment terms are the conditions under which you expect to be paid. They appear on every invoice, usually in the notes section or near the due date field — but most people never think carefully about what they're actually saying. This guide explains every common payment term, how to choose the right one, and how to phrase them clearly on your invoices.
What Are Payment Terms?
Payment terms specify:
- When payment is due (the deadline)
- How payment should be made (bank transfer, card, cheque, etc.)
- Any incentives or penalties (early payment discounts, late payment fees)
Payment terms are technically a contractual agreement between you and your client. If you've agreed them in advance (ideally in a written contract), they are legally enforceable. If you're just printing them on an invoice without prior agreement, they still set expectations — but they have less legal weight in a dispute.
Common Payment Terms Explained
| Term | What It Means | Best For |
|---|---|---|
| Due on Receipt | Payment expected immediately upon receiving the invoice | New clients, small amounts, one-off jobs |
| Net 7 | Payment due within 7 calendar days of the invoice date | Freelancers, quick turnaround projects |
| Net 14 | Payment due within 14 days | Most small businesses and freelancers |
| Net 30 | Payment due within 30 days — the most common corporate standard | Business-to-business (B2B) invoicing |
| Net 45 | Payment due within 45 days | Larger enterprises, some government contracts |
| Net 60 | Payment due within 60 days | Large corporate or government contracts |
| Net 90 | Payment due within 90 days | Supply chain businesses, manufacturing |
| 2/10 Net 30 | 2% discount if paid within 10 days; otherwise full amount due in 30 days | Businesses wanting to incentivise faster payment |
| EOM | End of Month — payment due at the end of the month the invoice was issued | Recurring monthly billing, retainers |
| 21 MFI | 21st of the Month Following Invoice — payment due on the 21st of next month | Common in UK B2B invoicing |
| CIA | Cash in Advance — full payment required before work begins | New clients with no track record, bespoke orders |
| COD | Cash on Delivery — payment at the point of delivery | Physical goods delivery |
| Immediate | Same as Due on Receipt — pay now | Consumer-facing businesses |
What Does "Net" Actually Mean?
In the context of payment terms, "Net" simply means the full amount owed (net of any discounts that might apply). "Net 30" means the client should pay the full invoice amount within 30 days.
This is different from "net" meaning "excluding tax" — the context makes it clear. When you see "Net 30" on a payment terms line, it refers to timing, not amounts.
The number after "Net" is always calendar days from the invoice date, unless your terms state otherwise (e.g. "30 business days" is much longer than "30 calendar days").
Early Payment Discounts
Some businesses offer a small discount to encourage faster payment. The format is: [Discount]% / [Days], Net [Days]
For example: 2/10 Net 30 means: take 2% off if you pay within 10 days; otherwise the full amount is due in 30 days.
This can work well for cash flow — you effectively pay a small "fee" (from the seller's perspective) to collect money faster. Whether it makes sense depends on your profit margin. If your margin is 10%, giving away 2% for faster payment is expensive. If your margin is 50%, it's more manageable.
Late Payment Clauses
Adding a late payment clause to your terms puts clients on notice that delays have consequences. A typical clause:
"Invoices unpaid after [30] days are subject to a late payment fee of [1.5%] per month on the outstanding balance, charged from the due date."
In many countries, businesses are legally entitled to charge statutory interest and compensation on overdue B2B invoices, even without a contractual clause:
- UK: Statutory interest of 8% above the Bank of England base rate under the Late Payment of Commercial Debts Act
- EU: EU Directive 2011/7/EU gives businesses the right to charge statutory interest on late B2B payments
- US: Rules vary by state; late fee clauses should be in the contract to be enforceable
- Australia: No statutory interest law, but late fees are enforceable if agreed in advance
Include your late payment terms on every invoice. Most clients won't trigger them — but having them there reduces the awkward conversation when chasing payment.
How to Choose the Right Payment Terms
The right payment terms depend on your business type, your client relationship, and your cash flow needs:
- If you're a freelancer with regular bills to pay: aim for Net 7 or Net 14. You cannot afford to wait 30 days for every invoice.
- If you're invoicing large corporations: accept that Net 30 is often non-negotiable. Factor the wait time into your pricing and cash flow planning.
- For a new client relationship: start with shorter terms (or a deposit). Extend them once trust is established.
- For a recurring retainer: bill at the start of the month, due within 7 days. This keeps cash flowing and keeps the client paying before work is done.
- For large projects: use milestone billing — invoice at project start, mid-point, and delivery. Never wait until the end to invoice the entire amount.
How to Write Payment Terms on an Invoice
State your payment terms clearly in the notes section of your invoice. Some good examples:
- "Payment due within 14 days of invoice date."
- "Due: [specific date]. Please pay by bank transfer to the details below."
- "Payment due 30 days from invoice date. Overdue invoices are subject to 1.5% monthly interest."
- "50% deposit paid. Balance of $X due on delivery."
Avoid vague terms like "payable shortly," "when convenient," or "upon project completion" without defining what that means. Clarity speeds up payment.
Start Invoicing — Free
All 26 of our invoice templates include a payment terms field. Fill in your preferred terms, download a professional PDF, and send it to your client — in under two minutes, completely free.