Understanding Payment Terms

What the common terms mean

Payment terms set when payment is due relative to the invoice. 'Net 14' means the full amount is due 14 days from the invoice date. 'Net 30' gives 30 days. 'EOM' (end of month) means payment is due at the end of the month following the invoice — which can stretch a late-month invoice out by almost two months in practice.

You may also see 'COD' (cash on delivery), 'payment in advance', or '7 days' for tighter arrangements. The label matters less than whether both sides understand and accept it. Always translate the term into a real date on the invoice so there is no ambiguity for the person paying.

Choosing terms for your cash cycle

The right term is the one that keeps cash coming in faster than it goes out. Map your own outgoings — wages, suppliers, rent — and set terms that fund them rather than starve them. A business paying staff weekly cannot comfortably wait sixty days to be paid by customers.

Shorter terms are not rudeness; they are normal commercial practice. Net 14 is widely accepted in Australia, and many trades operate on 7 days or COD without losing customers. Longer terms are a concession with a genuine cost: every additional day is working capital you are lending interest-free. Grant that concession deliberately, not by accident, and only where the relationship warrants it.

Make the due date unmissable

'Net 30' relies on the reader doing arithmetic, and a reluctant payer will happily do that arithmetic in their own favour. An explicit calendar date does not. State the due date prominently — 'Payment due by 31 March 2026' — near the total, not buried in fine print at the foot of the page.

Reinforce it everywhere the amount appears: the quote, the order confirmation, the invoice and any reminder. The more consistently the same date is repeated, the less room there is for 'I thought we had until next month'. Clarity here costs you nothing and removes one of the most common honest causes of late payment.

Making terms enforceable

Terms you spring on a customer after delivery carry little weight. To rely on them, the customer needs to have accepted them before the work began — through your quote, a signed credit application, or clearly referenced terms of trade. Identical wording across those documents is what makes the term stick.

This is also where interest and recovery-cost clauses live. You can only later charge overdue interest if your accepted terms provided for it; an interest line invented at the demand stage is easily disputed. If you intend to apply charges, set them out up front and run the numbers with the late-payment calculator so the figure you quote is one you can stand behind.