Invoice Payment Terms

Last Updated on June 1, 2023

As a new business owner, it’s a good idea to understand the different invoice payment terms that are out there before you set up your invoicing system. For example, you wouldn’t want to be sending an invoice with a due date that is too early and risk having it returned or one with dates that are too late and have it rejected because it was overdue (hint: an invoice due date calculator can help prevent overdue payments and ensure you’re staying on track).

This post will cover some of the most and least common types of invoice payment terms and how they work.

What Are Invoice Payment Terms?

Before we dive into specific types of payment terms, let’s first overview what invoice payment terms actually are. Invoice payment terms let a customer know when they are expected to pay off the invoice balance and what types of payment are accepted. A customer can find the payment terms on the invoice itself, alongside the invoice issue date, invoice due date, and amount due.

Now that you know what invoice payment terms are and where to find them, let’s cover standard and less common payment terms that you may come across.

PIA

Payment in advance, or PIA, are invoice terms in which the client pays for your service or product upfront before you provide it. Freelancers, self-employed consultants, and other independent contractors who are often paid at the beginning of a project or once they meet specific milestones use these payment terms. PIA lets them know exactly how much money they’ll receive, even if their work takes longer than expected.

CIA

CIA, or cash in advance, is similar to PIA since the seller receives payment prior to providing goods. However, CIA payment terms are associated with products that must be shipped to their final destinations, so they are more common in trade agreements and online marketplaces.

CIA payment terms are very secure for the seller but riskier for the buyer. Because the customer must pay in advance, the seller does not have to worry about working with uncreditworthy customers.

CWO

Cash with order, or CWO, is another name for payment in advance (PIA). This type of agreement requires the buyer to pay at the time of placing the order.

Net D

Net D payment terms are some of the most widely used invoice payment terms on the market. In this case, the “D” is a variable that stands for days and designates how many days a customer has to pay off their outstanding invoice. Common Net D terms include Net 7, Net 10, Net 30, Net 60, and Net 90, which you can read more about below.

Net 7

With a standard Net 7 invoice, the business receives payment within 7 days of the invoice date. If you supply a service or product, these payment terms mean that the client would typically receive your invoice and pay it within 7 days. This can vary depending on the industry and contract you have agreed with your client.

These terms are used by retailers with large overheads that need time to manage their cash flow before paying. Net 7 gives them more flexibility than Net 3 or Net 5 terms, which require payment within three or five working days.

Net 10

A standard Net 10 invoice gets paid within 10 working days of the invoice date. The only difference between Net 10 and other timed invoice payment terms is the time difference. Any business can use Net 10 payment terms.

Net 30

Net 30 terms are some of the most standard invoice payment terms you will see. With Net 30 terms, the business is paid 30 calendar days after the invoice date. If you must supply a service or product, these payment terms mean that your client would typically receive your invoice and pay it after 30 days. Businesses with large overheads which need time to manage their cash flows before paying invoices will often use this payment method.

Net 60

Net 60 payment terms usually mean that the due date for payment of an invoice falls 60 calendar days after the date on the invoice. When you supply a service or product, these payment terms mean that your client would typically receive your invoice and pay it within 60 days.

The extended time allows your clients more flexibility than Net 30 terms while still giving them enough time to manage their cash flow effectively. The most typical types of businesses that use Net 60 are manufacturing companies, charities, or organizations that are 100% business funded.

Related: Invoice Factoring for Manufacturing Companies

Net 90

With Net 90 invoice payment terms, the business is paid 90 calendar days after the invoice issue date. If you must supply a service or product, this means that your client would typically receive your invoice and pay it after 90 days.

These payment terms are for businesses that need time to manage their cash flows and can offer finance options to smaller businesses so that they can handle any cash constraints while waiting for payment. Charities and public sector entities such as local authorities and government agencies often use it.

Businesses with longer payment terms (Net 60-90) often turn to invoice factoring to boost cash flow.

EOM

An End of Month (EOM) invoice is typically paid at the end of each month or when a contract finishes. This allows you to invoice your clients once per month rather than every two weeks, which can be more convenient for both parties. If you supply a service, EOM payment terms mean that payment for this service gets collected at the end of each month.

It’s typical to use EOM invoice terms when you’re supplying a product as well as a service. In other words, if your client contracts you to produce monthly financial statements as an accountant or create website content as a freelancer, it’s common practice to issue an End of Month invoice.

Early Payment Discount Terms

Suppliers often offer early payment discount terms, in which the buyer receives a discount if the invoice is paid early. There are a few variations of these types of invoice payment discounts with the most common being 1/10 Net 30 and 2/10 Net 30. To get an idea of how these invoice terms work, see the chart below:

Early Payment Discount Terms	Terms Meaning
1/10 Net 30	The buyer receives a 1% discount if the invoice is paid within 10 days. If the invoice is not paid within the first 10 days, then the full invoice payment is due within 30 days.
2/10 Net 30	The buyer receives a 2% discount if the invoice is paid within 10 days. If the invoice is not paid within the first 10 days, then the full invoice payment is due within 30 days.
1/10 Net 60	The buyer receives a 1% discount if the invoice is paid within 10 days. If the invoice is not paid within the first 10 days, then the full invoice payment is due within 60 days.
2/10 Net 60	The buyer receives a 2% discount if the invoice is paid within 10 days. If the invoice is not paid within the first 10 days, then the full invoice payment is due within 60 days.
1/15 Net 30	The buyer receives a 1% discount if the invoice is paid within 15 days. If the invoice is not paid within the first 15 days, then the full invoice payment is due within 30 days.
2/15 Net 30	The buyer receives a 2% discount if the invoice is paid within 15 days. If the invoice is not paid within the first 15 days, then the full invoice payment is due within 30 days.

15 MFI

With 15 MFI payment terms, “MFI” stands for Month Following Invoice. The number that precedes “MFI” (in this case “15”) designates the day of the month following the invoice issue date on which a customer’s payment is due. So, for example, if an invoice is issued on May 22nd with 15 MFI payment terms, that would mean that payment is due by June 15th.

However, while 15 MFI is typically interpreted as payment being due on the 15th of the month following the invoice issue date, you may run into an instance in which the invoice is due the same month. Sometimes, if sellers issue the invoice prior to the 15th, the invoice payment may be due the same month. For example, if an invoice is issued with 15 MFI payment terms on May 3rd, payment could be due May 15th or June 15th. It is best to clarify with the seller prior to doing business with them to ensure you make on time payments.

COD

COD stands for cash on delivery. With COD payment terms, the buyer is expected to pay for their purchase once they receive it.

While it’s technically called cash on delivery, most businesses that offer COD also accept electronic payments. Businesses may choose to offer COD to attract new customers since this can be a way to make customers feel more secure in buying from a new company.

PPD

Professional Payment Due (PPD) payment terms vary depending on your country and your industry. In general, you can use PPD when you work with larger companies that want to pay invoices over some time rather than paying all invoices within 14 days of receiving them.

However, the exact time allowed for PPD can vary from 35-45 days between invoice date and due date, so ensure you find out the specifics of each contract before signing it.

CAD

Cash against documents, or CAD, is a common form of payment in international trade. Essentially, the shipping documents, such as the bill of lading, are not released to the importer until the payment has been made to the exporter. CAD, also known as documents against payment (D/P), is typically facilitated by a financial institution, which manages the release of the documents to the importer and the release of payment to the exporter so that both parties receive their respective items at the same time.

CND

CND, or cash next delivery, is used for recurring deliveries from the same business. CND means that the buyer’s payment is due prior to receiving the next delivery.

CBS

Cash before shipment (CBS) are payment terms that require the buyer to pay for the goods, in part or in full, prior to their shipment. You may see CBS used when ordering custom-made products, in international trade, or during quick turnaround orders.

Due Upon Receipt

The invoice payment terms “due upon receipt” are exactly what they sound like – the buyer is expected to pay the amount due upon receiving the invoice. Due upon receipt can improve cash flow for the seller since they would receive payment much more quickly compared to other standard payment terms, such as Net 30. However, many small businesses are unable to pay upon receipt, so if you choose to use these payment terms, use them strategically and with good reason.

Line of Credit

Using line of credit payment terms allows a buyer to purchase goods or services on credit from the seller and pay off the balance due on an agreed upon payment schedule. Offering a line of credit can be risky if you are unsure if your customers are creditworthy, but on the flipside, it can create loyalty and encourage them to place larger orders, which can lead to a more successful long-term partnership.

Net 10 EOM

In the invoice payment terms Net 10 EOM, “EOM” stands for “end of month”. With these types of terms, the invoice payment is due in full within 10 days after the end of the month that it was issued. To see this in action, consider an invoice that is issued on April 22nd with Net 10 EOM payment terms. This invoice would be due within the first 10 days of the next month, so the invoice due date would be May 10th.

Open Account

Open account payment terms are common in international trade and often favor the importer far more than the exporter. With open account terms, the goods are shipped and delivered before the exporter receives payment. Oftentimes payment is not due for 30, 60, or even 90 days after receiving the invoice. While open accounts are not very favorable to exporters, sellers often use them to stay competitive in the international market.

50/40/10

While not common, 50/40/10 invoice payment terms can have a few different meanings. Be sure to clarify prior to doing business with these terms to ensure on time payments are made. Below are the primary two definitions we’ve seen associated with 50/40/10 payment terms, but there may be other variations, depending on what has been negotiated between a buyer and seller:

• 50% of the invoice is due at the time of purchase, 40% is due at the time of shipping, and 10% is due at the time of delivery
• 50% of the invoice is due at the time of purchase, 40% is due 2 weeks before delivery, and the remaining balance uses Net 10 payment terms

25/25/50

Similar to the 50/40/10 invoice payment terms noted above, 25/25/50 typically references that 25% of the invoice is due at the time of order, 25% is due at the time of shipping, and 50% is due at the time of delivery. However, because these are uncommon payment terms, we recommend checking with the seller to confirm these expectations.

T/T

While not technically a set of invoice payment terms, T/T stands for telegraphic transfer, and you may see this term when working with overseas suppliers. A telegraphic transfer is a type of payment method that is similar to a wire transfer, and it is used to transfer international funds.

EOAP

EOAP, or end of accumulation period, is a phrase sometimes used when setting invoice payment terms. When using EOAP, there is an accumulation period and the payment terms associated with that accumulation period. The seller should define when the accumulation period is (for example, from the 5th of one month to the 4th of the next month), and all invoices that were accrued during that period would follow the defined payment terms.

EOAP is typically followed by a number (i.e. EOAP 60), which sets the payment terms. For example, if the accumulation period is from the 5th of one month to the 4th of the next month and the payment terms are EOAP 60, then the total invoice value that accumulated during the period would be due within 60 days of the end of the period, following traditional Net 60 terms.

5th 3rd Prox

Some of the least common invoice payment terms, 5th 3rd prox can be a bit confusing at first glance. With 5th 3rd prox, invoice payment is due by the 5th day of the 3rd month after the invoice issue date. For example, if an invoice is issued on February 16th with 5th 3rd prox terms, then the invoice due date would be May 5th.

Conclusion

As you can see, there are many different invoice payment terms available depending on the type of industry you’re working in and your clients’ preferences. So, before creating an invoice and sending it to your client, make sure you find out which terms they typically use so they can receive and pay your invoice promptly without unnecessary hold-ups.