10 Invoicing and Payment Terms You Need to Know

Invoices are an integral part of any organization. Without invoicing and payments, an organization cannot survive – that’s a given. However, there is more to invoicing and payments than simply a bill. 

Yes, I am talking about the payment terms and conditions. These are the specifications that you need to incorporate in your invoices and bills. It makes the bills more professional and helps you put forward your conditions in a more clear manner. This, in turn, leads to transparent communication and eliminates the possibility of miscommunication. 

Likewise, payment terms also facilitate businesses to receive payments at regular intervals with the help of a timely schedule. This way you can also create a budget based on expected income. With the help of free invoicing software, you can easily generate invoices. However, it is best to get familiar with some common invoicing and payment terms. 

Let’s see the ten most relevant payment and invoicing terms –

Terms of sale

As the name suggests, terms of sales are the terms that the client and the service provider have agreed on. These include the due date of the payment, mode or method of payment, delivery, amount, and cost. These are the basics of any invoice. 

In other words, terms of sale are the expectations of both the buyer and the seller/service provider. These serve to clarify all the basic conditions of both the parties involved. In international trade, terms of sale are particularly essential as it covers international taxes and duties, shipping, and other conditions of the international chamber of commerce. 

Payment in advance

Also known as PIA, payment in advance is a payment made ahead of the scheduled time. In many cases, the seller/service provider might as for a PIA if they are not in a position to bear the expenses upfront or sue to any other factor. This also ensures that they have the finances to cover out-of-pocket expenses in case the need arrives. 

Immediate payment 

Associated with ‘Payable on Receipt’ or ‘Cash on Delivery’, immediate payment refers to the payment due at the time of delivery. This may include only cash or any other form of digital payment. With immediate payment, the seller has the right to repossess the goods of intellectual property. 

Net 7, 10, 30, 60, 90

The numbers 7, 10, 30, 60, and 9 imply the number of days on which the payment is due. For instance, if an invoice is dated 12th July, and there is Net 60 mentioned in the invoice, then the invoice is payable on or before 11th September. 

With this term in your invoice, it is up to you to decide how much time you are willing to give to your client for the payment. You can either use shorter duration or longer ones based on your preference. Just in case, you can also mention the duration in simpler terms for the sake of your client’s convenience. For instance, ‘please make the payment within 30 days.’

2/10 Net 30

The term Net 30 is used in a similar context as Net 7, 10, etc. However, 2/10 refers to the condition that if the payment is made within 10 days of the invoice date, then the client will get a 2% discount. It is up to the seller/service provider to offer as much discount as they want. For instance, you could offer a 10% discount or a 7% discount as well. 

Since this term is confusing, you can also make the invoice simpler by adding a short line at the end. For instance, ‘Please make the payment before ten days to avail 7% discount.’ this way you can be sure that your terms are clear. 

Line of Credit Pay

Line of credit pay is a payment option wherein you give your client the chance to pay their bills over a period of time. This is usually on a monthly or quarterly basis. Line of credit pay is used generally by large organizations to help their clients avail the benefits of service on credit. Due to the obvious risks involved, small to mid-sized companies refrain from using line of credit pay.

Quotes & Estimates

An estimate is simply the estimated amount of your goods/services. It is an approximate value to give your client an idea of how big or small the figure of your invoice could be. This is not the final amount of your invoice. In quotes and estimates, you can also break down the pricing structure for your client to increase transparency and clarity. 

Recurring Invoice

Recurring invoices are calculated on a regular basis and are for ongoing continuous services. For instance, web hosting. Recurring invoices are a boon to service providers with fixed services as it saves the tedious task of generating the same invoice every month or every quarter.

9. Interest Invoice

Interest invoice is used when the client fails to pay the invoice on time. It refers to the additional amount charged as interest on the amount payable after the due date. While charging an interest invoice, you should only count the number of days by which the payment has been delayed after the due date. 

It is an invoice containing the calculated interest charges and a date to settle the payment.

10. Invoice Factoring

Invoice factoring is a process wherein an invoice factoring company pays you upfront when you are in need of cash. This is especially true when your client hasn’t paid the invoice and you desperately need the amount. 

However, there are certain terms and conditions associated with Invoice Factoring companies. It is best to go through them prior to agreeing to avoid any future issues. 

Final Thoughts

It is important to keep the terms of your invoice clear, concise, and short. Likewise, you must always be polite while asking for the invoice or even while stating the conditions of payment. It is a good practice to offer discounts, incentives on faster payment to encourage the clients to pay before the due date. 

Make sure that none of your terms of statements are even the slightest bit confusing. This may lead to undesirable consequences. Likewise, you should also offer different payment alternatives as this increases the payment flexibility. 

By Anurag Rathod

Anurag Rathod is an Editor of Appclonescript.com, who is passionate for app-based startup solutions and on-demand business ideas. He believes in spreading tech trends. He is an avid reader and loves thinking out of the box to promote new technologies.