Payment terms guide to boost your business’ accounting knowledge

You’ve just delivered an exceptional product or service. The invoice is sent, the deadline is set, and now… you wait. Eight days pass. Then ten. All of a sudden you’re two weeks past your invoice date. Your cash flow tightens, and paying your own suppliers becomes a struggle.

This isn’t a one-off story. This is the everyday reality for millions of small businesses across the United States. According to Small Business Insight, invoices for small businesses are paid an average of eight days after the payment is due. Considering that 99% of all US companies are classified as small businesses, you can see how this issue can ripple through the economy.

Late payments are frustrating, but they’re also dangerous. They stifle growth, erode trust, and put livelihoods at risk. And yet, payment terms - this critical element of business operations - are often treated as an afterthought, tucked into the corner of contracts, rarely questioned, and rarely optimized.

It’s time to change that. This guide will explore why payment terms are so important, and how you can use them to strengthen your business.

What are payment terms?

Payment terms dictate when you get paid, simple as that. When we're talking about accounts receivable (AR), it’s about when your customers settle their dues. For accounts payable (AP), it’s when you pay your vendors and suppliers. Two sides of the same coin, both equally vital to keeping your cash flow intact.

Now, you’ll find payment terms in two critical places: the initial contract and every single invoice. That's because consistency matters. Your contract sets the foundation, your invoice reinforces it.

On an invoice, payment terms include:

• Invoice date – When the clock starts ticking.
• Payment due date – The deadline of when the payment is due, loud and clear.
• Payment period – Known as the "net payment terms", e.g., Net-30 or Net-60.
• Invoice amount – Exactly how much they owe.
• Rules for deposits or advance payments – If upfront payment is required, AKA payment advances. 
• Payment plan details – For installment-based/monthly credit payment agreements.
• Accepted payment methods – Cash, credit card payments, bank transfer, direct debit, you name it.

Importance of payment terms for your business operations 

Let’s be blunt: without clear payment terms, your business is essentially just flying blind. Every invoice you send or receive without defined terms is a gamble, a bet on the goodwill, memory, and financial stability of others. And in business, hope is not a strategy. Here's a little more on why they're so vital:

Better cash flow

Cash flow is everything. Cash flow problems can mean having to close the doors to your business forever. In fact, SCORE found that 82% of small businesses fail for this very reason. They simply couldn't manage their money effectively enough to stay afloat.

Late payments and unpredictable income cycles can cause a domino effect: bills pile up, suppliers go unpaid, and growth plans stall. Payment terms are your solution. By clearly defining when payments are due and sticking to them, you create a predictable revenue stream. Predictability = stability, and stability gives you the freedom to focus on scaling, innovating, and thriving. So, don’t let cash flow be the Achilles’ heel of your business.

Transparency with your suppliers

Transparency is about trust. Trust builds partnerships, which in turn builds stability. When you’re clear about your payment terms, you show your suppliers you’re reliable and serious about your commitments.

Let’s back that up with a stat. PWC found that 93% of business executives agree that building and maintaining trust improves the bottom line. Think about that. Trust isn’t just a feel-good concept, it has a real financial impact.

What happens when you’re not transparent with your payment terms? Late payments, missed deadlines, frustration. Suppliers lose faith. Operations slow. Costs go up. Nobody wins.

Setting clear terms and sticking to them sends a powerful message: We value you, we’re dependable, and we’re in this together.

Describing payment terms’ elements

Now we’re going to run you through the key elements that make up payment terms. Understanding these elements is critical. So, let’s break them down:

Due dates

The due date is the foundation of every payment term. It sets the timeline—the "when"—of payment expectations. Without a clear and defined due date, you’re essentially leaving your business at the mercy of someone else’s schedule. And let us tell you, "whenever" is never a strategy that works. Timely payments are the name of the game.

Discounts for early payments 

Here’s the deal with early payment discounts: they’re a win-win if done strategically. Offering customers a financial incentive to pay early creates a smoother cash flow by accelerating your revenue cycle so you're paid faster.

One common example is the order partial payment discount, which offers customers flexibility by allowing them to pay a portion of their invoice upfront in exchange for a reduced overall cost. However, there's a few ways you can offer discount terms so be sure to look into what works best for you and your company.

Late penalty fees 

Now, let’s talk about the other side of this, late fees. These are your back-up plans. They set boundaries, outline consequences, and ensure your business doesn’t become a victim of poor payment habits.

Late fees aren’t just about punishing a late payment. They’re about creating a sense of accountability. They communicate: "We expect timely payment, and there are real consequences for delays." Customers will respect you more when you’re clear and firm about the rules, so long as you’re fair and consistent.

Types of payment terms

Not one company is the same. And, different businesses need different options depending on the industry, customer behavior, or financial goals. Let’s break down the most common types of payment terms so you can determine which ones make the most sense for your business.

Immediate payment

Immediate payments are as straightforward as they sound. The customer pays upfront or upon delivery—no waiting involved. This is common for one-time projects, custom orders, or high-value transactions and international trade. The major benefit here? Cash in-hand right now.

Delayed payment

Delayed payment gives customers more time to pay their invoices. Depending on the agreement, this can range from 30 to 60 or even 90 days. While it’s a riskier approach, it can give you a competitive advantage.

Early payment discounts

The psychology behind early payment discounts is simple: "Pay now and save money." It works. Customers like saving money, and you get the liquidity you need faster. It’s a win-win. Just make sure the discount is meaningful enough to drive action but sustainable enough for your business finances.

Installments

Offering installment options allows customers to break their payments into smaller, manageable chunks over time. This can be especially beneficial for large purchases or long-term projects.

Cash on deliver

With cash on delivery, payment is made at the time of delivery or receipt of goods/services. This is sometimes also called ‘Pay after delivery’ and is common in industries with unpredictable payment habits or for high-risk transactions.

Net payments

Net payments are the most common type of payment term—and for good reason. "Net" just refers to the number of days customers have to pay the invoice from the date the invoice is sent. Examples in invoicing include Net-7, Net-15, Net-30, Net-60, or Net-90.

Epos Now’s cloud POS software and payment terms management

Financial management is a huge part of running a business, but it doesn’t have to be stressful and time-consuming. By choosing the right financial software for your small business, you can turn your attention to other areas of your business, like operational efficiency and taking care of your customers. 

POS software can handle reviewing sales, bookkeeping, and accounting tasks. Epos Now offers state-of-the-art POS programs for businesses in various industries. We let you choose the tools and insights to help your business achieve its goals. You can do everything from process transactions and print receipts to take inventory and manage staff. 

With Epos Now, you can also:

• Create and send invoices using simple templates and a built-in VAT calculator with our invoice software apps
• Receive and pay ongoing invoices automatically
• Review profitability reports based on individual product performance, trending items, best and worst sellers, and employee sales
• View sales analyses on profit margin, cash flow, and other expenses
• Access multi-award-winning inventory management systems that sync online sales and in-person sales for the most up-to-date stock levels
• Automate stock purchasing, so you never miss a sales opportunity
• Save customer contact details and shopping preferences for more targeted marketing on our CRM system
• Integrate with the business automation apps that are right for your business
• Simplify employee management for more efficient scheduling and payroll