How to Write Invoice Payment Terms

 

If there’s one thing most business owners can agree on, it’s that they want to be paid sooner. You know the story—you send out an invoice to your clients and wait weeks for them to settle up. What if there were a better way to set expectations on when and how you want to get your money, and to encourage clients to pay you promptly?

That’s where invoice payment terms come in. They’re the terms and conditions on an invoice that tell your clients everything they need to know about paying you. Properly written invoice terms let you set expectations with clients, tell them about their options, and explain why they should pay within a certain time. This keeps everyone happy—your customer knows what they need to do, and your bank account gets credited without you having to send out reminders and penalties.

Setting invoice payment terms is about more than cutting and pasting from elsewhere or using a template. You need wording that applies to your unique business while using best practices. Guess what? We’re here to help.

Best Practices for Wording Payment Terms on Invoices

Let’s start by exploring some general rules and principles for putting your payment terms together.

You Need to State Your Payment Terms and Conditions on the Invoice

Every client should understand how and why they need to pay your invoice, and that means stating your invoice terms clearly. Ideally, these should be included on every invoice, with a link back to your website terms where they can get more information. That way, your customers know what you expect of them.

Your Invoice Payment Terms Should be Clear and Easy to Understand

Keep jargon and acronyms to a minimum for your invoice terms. Any customer should be able to read through and make sense of them without having to refer elsewhere. The easier they are to understand, the more likely your customer is to stick to them.

Your Invoice Payment Terms Should be Fair

Ideally, your terms should be fair to both your business and your customer. If you already have a contract with a customer that lays out payment terms, ensure your invoices reflect that. If this type of customer normally pays monthly or on 30-day terms, state that on the invoice.

Your Invoices Should Include Standard Information

In addition to your payment terms, you’ll also need to include standard details on your invoices, including:

  • The name of your business and the name of your client.
  • Details of the products and services you’re charging for.
  • A unique reference number for the invoice.
  • The invoice date and the payment due date.
  • The amount that is due.
  • Any taxes or discounts.
  • How the client can pay the invoice.

You Should Include Important Information in the Covering Email or Letter

When you send an invoice to a customer, you may also send a covering email or other correspondence. You should also reference your invoice terms there. This is especially important when you send out reminder emails chasing payments, particularly if you charge late fees, interest, or penalties.

What To Include in Your Invoice Payment Terms

When you’re putting your payment terms together, it’s important to understand what you should include.

When You Expect the Invoice to be Paid

How soon after you send the invoice do you want a client to pay? Obviously, the best answer is “immediately,” but many customers, especially businesses, will have longer payment cycles. 30 days is a good, default option for invoicing, although you might choose something quicker, like 7 days, 10 days, 14 days, or 28 days. This time to pay is known as your “Net XX days” term. For example, if you want them to pay within 30 days, they have a “Net 30” which means the invoice is due 30 days after it is sent out.

An example: All invoices are due on a net 30-day basis, so they must be paid within 30 days of the invoice date to avoid late payment penalties.

Discounts for Paying an Invoice Sooner

One way to encourage rapid payment is to offer discounts if invoices are settled quickly. For example, if a customer pays off their invoice within seven days of receiving it, you might offer a two percent discount.

An example: Invoices settled within seven days of the original invoice date will receive an automatic discount of two percent, which will be credited to your next invoice.

Payment Options for the Customer

You will want to list the various ways a customer can choose to pay and how to make the payments. For example:

  • Pay by credit card or debit card, together with online payment links.
  • Pay through PayPal or another online payment service.
  • Pay via ACH or a bank draft, with your bank account details.
  • Pay by check, with who the check should be payable to.
  • Pay internationally, with your international bank details, like your International Bank Account Number (IBAN).

If you offer payment plans or special financing, you can also mention those options.

An example: You can pay this invoice by debit or credit card, by check to the above address, or by bank credit to the following account.

Wording for Invoice Late Fees and Penalties

It’s inevitable that some of your invoices won’t be paid on time, and when that happens you need to decide on your late fees and penalties. Some businesses might decide to charge a fixed fee, say $10 for each week an invoice is late, while others will charge a percentage of the overdue amount, for example, one or two percent per week. You need to clearly state what those late fees will be.

An example: A late payment penalty of one percent of the overdue balance will be charged for every week after the due date that his invoice remains unpaid.

Common Invoice Payment Terms

Here are some terms you might include in your invoice conditions. As you want to keep your invoice terms clear, it’s worth spelling these out when you use them:

  • Net XX Days: The time a client has to pay the invoice from when they receive it.
  • Payment in Advance (PIA): The client will need to pay for the goods or services prior to receiving them.
  • Cash on Delivery (COD), Immediate Payment, or Payment on Receipt: The client will need to pay for the goods or services as soon as they are received.
  • End of the Month (EOM): There’s a reference to the end of the current or future calendar month.

Optional Invoicing Terms to Think About

Before we finish, it’s worth considering if you want to include the following areas on your invoices:

  • Special terms for special clients, if you’ve agreed more (or less) advantageous payment conditions for certain customers.
  • Warranty or guarantee terms for the quality and condition of the goods.
  • Return or replacement policy if the goods are not fit for purpose or are unwanted.

If you think they’re useful, you can include them on your invoices.

We hope you’ve found this guide to invoice payment terms useful, and that it encourages your customers to pay you sooner. Get these terms into your invoices, and you’ll make it easier for your clients, give them more options, and keep things clear and fair.

Tags: Biller Genie, invoice payment terms, invoicing terms, invoice late fees