How to get paid faster on your invoice — Part I

Having better payment terms and have discounts can get you paid faster. In this blog post we will go in depth on payment terms and discounts.

Payment Terms

  • NET 7 — Your customers should pay in 7 days after the invoice date
  • NET 10 — Your customers should pay in 10 days after the invoice date
  • NET 30 — Your customers should pay in 30 days after the invoice date
  • NET 60 — Your customers should pay in 60 days after the invoice date
  • NET 90 — Your customers should pay in 90 days after the invoice date

If you are picking a standard payment term you should choose a payment term shorter than what you expect your customers to pay you by. However you want the payment term to be longer than Due On Receipt (which means the customer should pay you ASAP after they receive the invoice) because people usually never pay when they receive the invoice.

So for example if you have enough cash flow to get paid by 30 days try using a payment term of NET 10. The reason is that people will usually wait till the moment the invoice is due to pay it off. You are shortening the time and making them act sooner, which will help your cash flow.

Discounts

There is another trick to get your customers to pay faster. If you offer an incentive for your customer to pay faster. This incentive comes in the form of a discount if your customer pays early. These discounts have standard payment terms as well, which are below.

The terms are in form: (discount in percentage)/(days after invoice date discount valid) NET (days after invoice date payment is due)

  • 1/10 NET 30 — Your customer will get a 1% discount if they pay 10 days after the invoice date, the payment is due 30 days after the invoice date.
  • 2/10 NET 30 — Your customer will get a 2% discount if they pay 10 days after the invoice date, the payment is due 30 days after the invoice date.
  • 1/15 NET 30 — Your customer will get a 1% discount if they pay 15 days after the invoice date, the payment is due 30 days after the invoice date.
  • 2/15 NET 30 — Your customer will get a 2% discount if they pay 15 days after the invoice date, the payment is due 30 days after the invoice date.

Here is a concrete example. Say you invoice your customer $1000 dollars and you typically can afford to get paid within 30 days, however it would be nice if you could get paid sooner; so you can put that money to work somewhere else. You can invoice your customer and use 2/10 NET 30 on the payment terms. That means if your customer pays within 10 days after the invoice date, you will give them a $1000*.02 = $20 dollar discount. Else they have to pay $1000 dollars which is due 30 days after the invoice date.

There are some disadvantages to using percentage discounts. Even though we are giving the customer a small 1–2% discount; in certain cases that could be costly for the vendor over the long run. We will discuss this more in depth and give other ideas of how to get paid quicker in part II of our next blog post.


Originally published at blog.invoiced.com on April 28, 2015.