As a business owner, whether you manage a large company or a small enterprise, understanding how to create invoices and collect payments efficiently is key to maintaining smooth operations. Prompt payments help sustain steady cash flow, allowing you to handle expenses, invest in growth, and keep your business functioning without disruption.
Late or missed payments, on the other hand, can seriously damage your business. Studies show that 25% of small businesses experience payment delays of up to 30 days beyond the agreed terms. These overdue payments disrupt cash flow, reduce revenue, and often force you to adjust your business strategy to make up for financial shortfalls.
Beyond financial setbacks, delayed payments can strain client and supplier relationships, leading to unnecessary tension. Persistent late payments may also indicate deeper issues within your client base, suggesting the need to reassess credit policies or tighten payment terms. Adopting strong invoicing systems and a structured follow-up process can help reduce these risks and strengthen your cash flow management.
What are invoice payment terms?
Payment terms refer to agreements that set payment options and expectations for payments. To ensure that they receive prompt payments, business owners set payment terms. The more common payment terms are net 30 and net 60.
Net 30 means that the business owner expects payment within 30 days from the invoice date. Net (number of days) is a credit term that means a business delivered a product or service first in expectation of receiving compensation at the stated date.
Imagine you’re about to open a storefront and purchase equipment worth $4,000 on credit. You recently delivered goods worth $6,000 to a customer and submitted an invoice.
You hope that the client will make the payment by the end of the month. The payment due date arrives and elapses, but still no payment. Attempts at follow-up with the client remain futile. As a result of the unpaid invoices, you’re paying utility bills and wages for a store that isn’t generating enough money, and you have to clear the accounts payable. Instead of making money, you wind up losing it.
This shows the importance of payment terms. Since not every customer can make an immediate payment, create a professional invoice highlighting the payment terms of the sale.
Make a concise and easy-to-understand invoice with stage payments options and discounts to incentivize early payments. Also, include late payment penalties to discourage overdue payments. That will increase your chances of receiving payments on the invoice due date and reduce the amount of accounts receivable.
In addition to determining when clients pay, you also have to control how they pay. Always include your preferred payment methods in the invoice terms. Selecting how you want to get paid ensures clients process payments quickly and helps avoid confusion and payment delays.
The best way to ensure prompt payments is to make the process as seamless and convenient as possible for clients. If you are used to receiving checks or cash payments, consider adding different payment methods that clients frequently use. The best two payment methods are:
a) Smart invoices
Invoicing software makes it convenient for clients to make payments using pay-enabled smart invoices. Smart invoices let customers use payment methods such as debit cards, credit cards, and automated clearing house (ACH) bank transfers.
Smart invoices also allow you to set up recurring and automatic payments, which helps reduce any guesswork associated with invoicing. If you’d rather not have recurring payments, there is still the option of sending an email invoice with the payment link.
These features come in handy for ongoing contracts, so choose an invoicing software that comes with free ACH payment features.
b) Credit card payments
Credit card payments are a popular and convenient way to make payments. Ask clients to provide you with a credit card number that you can charge. Remember that there are fees associated with using credit cards, and you will need to factor in those fees.
You can choose to pay the fees or pass on the costs to customers. If you want the clients to pay the fees, indicate this in the contract. This stops clients from feeling duped or blind-sided.
You cannot always have control over when clients make payments. Anything can happen on their end that will disrupt your business. Use a net terms management company to prevent that.
Take Resolve, for instance–they take on the risk of late payments, enabling you to have a continuous cash flow for the business. For approved customers, Resolve lets them pay in 30, 60, or 90 days while you get paid up to 90% of the invoice face value after one day. They conduct credit checks on clients to determine who qualifies for net terms.
Suppose you don’t know how to invoice customers effectively and make payment claims. In that case, Resolve offers an accounting software solution to run payment processing for business owners who can’t run their own net terms processing teams.
With Resolve, you won’t ever have to worry about chasing after late payments. Instead, this company takes on that responsibility and collects the payments. Think of Resolve as having your own personal credit team.
Having payment terms is critical to the success of your business. However, these are some of the challenges you may encounter along the way:
Final word – why you need payment terms on invoice
Managing invoices and payments can be a headache for small business owners, often pulling them away from their core activities. To avoid this, make sure to specify clear payment terms on each invoice, like cash on delivery, cash next delivery, and net terms, so your clients know exactly when to settle.
However, some payments may still get missed. That’s where an independent firm like Resolve comes in. They’ll pay you up to 90% of the invoice’s value within a day of sending it out, offer your customers net terms of up to 90 days, and take care of the payment follow-up themselves. Request a demo to find out how they can help you.
This post is to be used for informational purposes only and does not constitute formal legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Resolve assumes no liability for actions taken in reliance upon the information contained herein.