Table of Contents
Key Takeaways
Payment terms are essential in any business transaction as they define the cash flow cycle. They are the rules that ensure vendors and suppliers get paid on time and customers know when to expect payments. When discussing payment terms, we refer to the conditions that dictate when and how payments should be made.
Payment terms define when you get paid—at least regarding accounts receivable (AR). For accounts payable, payment terms usually refer to paying vendors and suppliers.
But regardless of who is paying who, the terminology is the same. The most significant difference is strategy.
Setting your payment terms means you set the cash life cycle. Of course, customers don't always abide by your words — but failing to have them can result in chaos.
Payment terms are the rules that govern how and when a buyer should pay a seller. They are foundational to a business’s cash flow strategy. For accounts receivable (AR), these terms define when your business expects to get paid. For accounts payable (AP), they determine when you’re expected to pay vendors.
Payment terms are usually outlined in:
Each invoice should include:
Here are common invoice terms used across industries:
| Abbreviation | Meaning |
|---|---|
| Net-7/30/60 | Payment due in 7/30/60 days |
| COD | Cash on delivery |
| CIA | Cash in advance |
| EOM | End of month |
| 1MD | Monthly credit payment |
| CWO | Cash with order |
| PIA | Payment in advance |
| Rebate | Refund sent after purchase |
| Trade-in | Discount for returned items |
Yes—especially if late payments are common. A standard late fee is 1% to 1.5% monthly. To avoid disputes:
Having terms in place doesn’t guarantee timely payment. To recover unpaid invoices:
Legal action is a last resort and should be used cautiously.
Offering multiple payment methods increases convenience and accelerates cash flow. Prioritize:
Use tools like Paystand to automate fee recovery and method incentives.
| Industry | Typical Terms |
|---|---|
| Agriculture | Immediate – 3 days |
| Construction | 30 – 90 days |
| IT & Marketing | 30 days |
| Medical Supplies | Immediate – 30 days |
| Retail | 3 – 7 days |
| Professional Services | 14 – 75 days |
Enterprise size also impacts payment periods—larger firms may take 60–90 days to pay.
To improve cash flow:
In B2B, terms are usually formalized in contracts. Example:
"Invoices are payable within 30 days. Late payments accrue 1% monthly after a 7-day grace period."
Ensure terms also appear clearly in:
Advance payments reduce risk for suppliers. They are common when working with new customers. You can request:
Clearly define:
Make it easy to pay:
With Paystand, you can sync invoice data with your ERP and automate the full AR cycle—no more chasing payments manually.
It means the payment is due within 30 days of the invoice date.
2. What are standard payment terms for small businesses?Net-15 or Net-30 is common. Immediate payment or partial prepayment may also apply for cash flow reasons.
3. Can I change payment terms after signing a contract?Only with a mutual agreement. Changes should be documented and signed by both parties.
4. Are late payment fees legal?Yes, as long as they are clearly stated and within local law limits.
5. What’s the difference between CIA and COD?Incentives (e.g., 2% off) for using low-fee methods like ACH instead of credit cards.
7. How do I enforce payment terms?Payment terms aren’t just formalities—they are levers to control your cash flow, incentivize fast payments, and improve your bottom line. With the right tools and strategy, you can create a seamless AR experience for your customers and your team.
Want to improve your payment terms and get paid faster? Learn more about collections automation that simplify your receivables