Understanding Invoice Payment Terms

When you send an invoice, you need to tell the client when to pay. This is done through payment terms. But if you're new to business, terms like "Net 30" might sound like a foreign language.

Here is a breakdown of common invoice payment terms and how to use them.

What Does "Net" Mean?

In invoicing, "Net" refers to the total amount due. When followed by a number (e.g., Net 30), it means the net amount is due within that many days after the invoice date.

• Net 15: Payment due within 15 days.
• Net 30: Payment due within 30 days (the standard for many B2B transactions).
• Net 60: Payment due within 60 days (often used by large corporations).

Due Upon Receipt

This means you expect the client to pay as soon as they receive the invoice. While great for your cash flow, it can sometimes be unrealistic for larger corporate clients who have specific accounts payable cycles.

EOM (End of Month)

Payment is due at the end of the month in which the invoice was issued. For example, an invoice sent on March 10th with "Net 15 EOM" terms would be due 15 days after the end of March (April 15th).

Late Fees

To encourage timely payment, you can include a late fee clause in your terms. For example: "A late fee of 1.5% per month will be added to past due balances." Important: You must state this clearly on the invoice and ideally in your initial contract.

Which Terms Should You Use?

For freelancers and small businesses, Net 15 or Net 30 are usually the sweet spot. They give the client reasonable time to process the payment without leaving you waiting too long for your money. Always discuss payment terms before starting the work!