Invoice payment terms: How to use them, and what do they mean?

Panna Kemenes

All invoices need to include clear invoice payment terms. These terms are essential for letting customers know how and when to pay the invoice and the consequences of late payment.

It’s important to agree on when and how you’ll be paid before any work starts.

The invoice should display these terms, and they should be easy to understand.

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This piece has been written in collaboration with Esther Friedberg Karp, an esteemed bookkeeper and QuickBooks ProAdvisor.

Invoice payment terms: What are standard invoice terms?

The following are some main standard invoice payment terms:

Payment In Advance
  • This term informs the customer that they must pay the invoice amount due before the service is carried out or goods delivered.
  • Payment in Advance could be specified for the full or partial invoice amount.
  • Can also be called "Cash in Advance" or "Cash Before Delivery"
Cash On Delivery
  • Payment is taken at the time the goods are delivered to the customer. Advance payment is not needed, and the buyer will take payment upon delivery.
  • Also known as COD/Cash on Demand.
Cash With Order
  • ‘Cash With Order’ involves the immediate payment of all or part of the total amount at the time the order is placed.
Immediate payment/Due upon receipt
  • This specifies that payment is due immediately upon receipt of the invoice (in actual fact, it means that payment is due immediately on the date of the invoice!).
End Of Month
  • End of Month (or EOM) specifies that payment is due at the end of the month in which the invoice is dated.
15 Month Following Invoice
  • 15th of Month Following Invoice (or 15 MFI) specifies that payment is due on the 15th of the month following the invoice date. Other days can also be used, such as 21 MFI.
Net 7, 21, 30, 60, 90
  • This means that payment is expected within 7, 21, 30, 60, or 90 days from the invoice date.
2/10 Net 30
  • This term specifies incentives for the early payment of an invoice. 2/10 Net 30 means that payment is due 30 days from the invoice date, but the customer will receive a 2% discount if they pay within ten days.
  • This format can be used (with different numbers) to tailor incentives as desired.
50 Percent Upfront
  • This term tells the customer that 50% of the invoice total must be paid before work begins.
  • 1MD is used to specify a credit payment of one month. Goods are supplied for one month.
  • 2MD is the same, with an extra month.

Invoices form part of the legal process for disputes. Making sure terms are included and understood is vital. They can protect both the business and the customer.

It’s not all about legalities and protection, though. Using invoice terms correctly can also help companies get paid faster. For example, including the currency of payment on international invoices can save time and money.

An invoice will always have certain key items. These include:

  • Invoice date;
  • Description of the goods or services supplied;
  • Total amount due;
  • The currency of the invoice. This is especially important for overseas payments;
  • Payment methods that the customer can use;
  • Terms and policies in force for late payments;
  • The payment due date based on the terms stated (using the terminology detailed below).

The invoice terms go further and explain how and when customers should make payment. The meaning of these is not always obvious.

As invoices form a binding contract, it pays to make sure you are using invoice terms correctly.

What are standard payment terms for?

Invoice payment terms inform customers when and how an invoice needs to be paid. Clear, standard terms avoid ambiguity. They also help avoid disputes and potential late payments.

Explicit invoice terms help companies plan their payment schedules and cash flow.

Research from Quickbooks in 2019 shows that late payments are the primary cause of cash flow problems in small businesses. They also found that 80% of small business owners stress about cash flow.¹

For the supplier, payment terms should help with receiving on-time payments. There are ways to use the terms to increase payment rates and get paid earlier. We will explore some of these shortly.

What payment due date should you use?

There are many standard terms for payment, but which do you use? Should you request payment before delivery, immediately on receipt, or after a specific time? The choice will vary among companies and customers.

The use of immediate payment is uncommon in business transactions, although it is the standard in online e-commerce.

Payment In Advance and Cash In Advance terms minimize risk for the seller, but they can be difficult for the buyer. There are some situations where they may be appropriate. These include early trade relationships where the seller is not confident in the customer’s ability to pay, or where there are political or economic difficulties in the country.

Net 30, where full payment is due within 30 days of the invoice, has become a common business-standard. A study in 2017 by Atradius Solutions showed that the average payment term used by businesses in the Americas was 27 days.²

Some businesses have started using shorter payment deadlines. The increase in the use of electronic invoices is leading to faster payments.

Net 30 allows time for invoices to be sent and received, and the time taken to arrange and transfer money. With electronic invoices, customers receive payment details immediately. This allows adding an earlier due date.

According to research by Xero, close to 75% of invoices in the US now ask for payment within two weeks.³

Adding a shorter payment deadline can also be considered for international invoices. The currency may fluctuate by the time of payment with a NET30 deadline. A NET7 deadline minimizes the risk of being underpaid due to a difference in currency exchange.

Use Wise Business
to receive different currencies in one place

How to add invoice payment terms

It is vital to ensure payment terms are properly included on the invoice and clearly explained. Doing this will hopefully lead to more on-time payments and a better customer relationship. Some best practices to keep in mind include:

  • Keep the wording and tone polite.

Just as you would treat a customer politely in person, you should do so through the invoice. This will help maintain a good relationship and may also lead to faster payment. An interesting study by FreshBooks in 2019 showed that using the words “please” and “thank you” in the payment terms led to faster payments.⁴

  • Use clear and concise wording.

Payment terms should aid understanding, not make the invoice more confusing. Think about whether the customer will understand the terms or if some additional explanation is needed.

  • Make the payment deadline clear.

Ensuring that the payment timeframe and deadline are highlighted should be a priority. Again, think about terms that need clarification. For example, ‘Net 30’ may require clarification with a phrase such as ‘payment is due by.’

  • Include details of late fee terms and amounts.

This is important legally, as you can only enforce late payments if the invoice properly states them. It can also lead to faster payments. FreshBooks research showed that invoices specifying an interest fee were more likely to get paid. Including the word “interest” increased the overall payment rate from 79% to almost 92%.⁴

  • Include all payment methods that the customer can use.

Don’t assume that your customers know about, or will ask about, other payment methods. Including more options will make it easier to pay, hopefully speeding up payment. This could include cash, check, wire transfer, or credit card. With electronic invoices, payment can be made directly.

💡 You can open a Wise Business account, and include your USD account details on the invoice to get paid with ease.

Ways to get paid faster using the right invoice payment terms

Every company wants to get paid more reliably and faster. How can you use invoice payment terms to influence this? Here are some methods that can make a difference:

Specify a shorter payment deadline. Payment within 30 days may be the industry standard, but clients are likely to stick to it if you specify this. Including a shorter payment timeframe can lead to faster payments.

Several studies support this. A study by Xero for US invoice payments showed that when a 7-day deadline was set, payments were received on average in 13 days. When 30 days were set, this average increased to 28 days.³

FreshBooks looked at it slightly differently, but showed the same faster payments. It demonstrated that asking for payment in 7 days resulted in over 58% of invoices being paid in this timeframe. When asking for payment within 30 days, only 40% were paid within 7 days.⁴

Include currency options for international clients. The terms should include all options and currencies for payment. If customers have to arrange for currency conversion, you run the risk of a delayed payment. It’s always better to allow customers to pay in a currency that suits them where possible, as it can help remove the barrier to prompt payment, protecting your cash flow.

If you use a multi-currency account provider like Wise, you can get local account details (i.e. routing number, IBAN etc.) in a variety of currencies to help make the process easier.

Offer incentives for early payment. Especially if you use longer payment deadlines, you can consider offering discounts. For a Net 30 payment term, 2/10 Net 30, or even 2/7 Net 30, can speed up payments. Importantly, this still gives customers the option to pay later if it helps cash flow.

Chase up late payments. You should specify late payment terms on the invoice. If you don’t receive payment on time, don’t be afraid to follow up with a late payment notification. Whether to enforce fees is up to you. It may be better to preserve the relationship than impose penalties. You can also consider sending reminders as the payment deadline approaches.

Use invoicing software. This can make your work preparing, managing, and storing invoices much simpler. It can also automate invoice creation and ensure that terms are properly displayed.

Use a clear invoice template. Making all terms, payment deadlines, and penalties clear is important in receiving prompt payment. If a client does not understand the terms or is misled by the layout, they may delay. Using a professional invoice template will assist with this.

💡 Download your free invoice template from Wise

Get paid on time - add local currencies to your business’ payment terms with Wise

When dealing with international customers, currency conversion and payment methods have added complications. Making this as simple as possible removes stress and makes customers more likely to pay invoices on time.

Agreeing on the currency to use for payment makes international invoicing simpler. It's even better if customers can pay in their local currency. Wise offers the opportunity for this.

Wise Business is the cheap & easy way to manage your international business.

Save time & effort by using Wise

A Wise Business account can support 10 local currency account details. Wise also uses the real mid-market exchange rate. There are no added markups, and fees are low and transparent.

Wise Business can also connect to many leading invoicing and accounting software solutions, including QuickBooks and Xero.

You can add your USD account details to your invoices – making it easier to get paid like a local.

💡 For all you need to know about invoices, don't forget to read and bookmark the ultimate guide to invoicing from Wise!
    She has been named twice to the list of Insightful Accountant’s Top 10 QuickBooks ProAdvisors worldwide, with the titles “Top International ProAdvisor” and “Top Trainer/Writer ProAdvisor.”


  1. Cash Flow Management for Small business | QuickBooks
  2. Average payment terms in the US
  3. Xero research on payment terms
  4. Use Your Invoice Payment Terms to Get Paid Faster

All sources checked 14 September 2021.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from Wise Payments Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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