The Guide to Payment Terms and How to Optimize Them

Table of Contents

1. What Are Payment Terms?
2. What Do Payment Terms Include?
3. Common Payment Term Abbreviations
4. Should You Charge a Late Fee?
5. How to Deal with Unpaid Invoices
6. Accepted Payment Methods
7. Standard Payment Terms by Industry
8. Negotiating Better Terms
9. Communicating Payment Terms
10. Advanced Payment Terms
11. Getting Paid Faster
12. FAQs About Payment Terms

Key Takeaways

• Payment terms are the conditions that define when and how your customers must pay.
• Standard terms include Net-30, CIA (Cash in Advance), and COD (Cash on Delivery).
• Properly set payment terms help manage cash flow, reduce late payments, and set clear expectations.
• Industry norms vary widely—construction often uses Net-90, while food services may require immediate payment.
• Automation tools like Paystand can help enforce terms, streamline AR, and accelerate payments.

Payment terms are essential in any business transaction as they define the cash flow cycle. They are the rules that ensure vendors and suppliers get paid on time and customers know when to expect payments. When discussing payment terms, we refer to the conditions that dictate when and how payments should be made.

Payment terms define when you get paid—at least regarding accounts receivable (AR). For accounts payable, payment terms usually refer to paying vendors and suppliers.

But regardless of who is paying who, the terminology is the same. The most significant difference is strategy.

Setting your payment terms means you set the cash life cycle. Of course, customers don't always abide by your words — but failing to have them can result in chaos.

What Are Payment Terms?

Payment terms are the rules that govern how and when a buyer should pay a seller. They are foundational to a business’s cash flow strategy. For accounts receivable (AR), these terms define when your business expects to get paid. For accounts payable (AP), they determine when you’re expected to pay vendors.

What Do Payment Terms Include?

Payment terms are usually outlined in:

• Contracts
• Invoices
• Terms & conditions pages (especially for B2C/eCommerce)

Each invoice should include:

• Invoice date
• Payment due date
• Net payment period (e.g., Net-30)
• Invoice total
• Deposit or advance requirements
• Payment schedules (if applicable)
• Accepted payment methods

Common Payment Term Abbreviations

Here are common invoice terms used across industries:

Should You Charge a Late Fee?

Yes—especially if late payments are common. A standard late fee is 1% to 1.5% monthly. To avoid disputes:

• Provide a 3-7 day grace period
• Reference fees in contracts & invoices
• Remind customers during collection outreach

How to Deal with Unpaid Invoices

Having terms in place doesn’t guarantee timely payment. To recover unpaid invoices:

1. Follow-up with calls/emails
2. Use a collections agency
3. Automate collections and prioritize major offenders

Legal action is a last resort and should be used cautiously.

Accepted Payment Methods

Offering multiple payment methods increases convenience and accelerates cash flow. Prioritize:

• ACH and bank transfers (low fees)
• Credit cards (high fees—add a convenience fee)
• Zero-fee options to steer behavior

Use tools like Paystand to automate fee recovery and method incentives.

Standard Payment Terms by Industry

Enterprise size also impacts payment periods—larger firms may take 60–90 days to pay.

Negotiating Better Terms

To improve cash flow:

• Offer early payment discounts (e.g., 2% off if paid in 7 days)
• Provide ACH discounts to reduce processing costs
• Extend lines of credit for trusted clients
• Use ERP tools to automate custom invoicing

Communicating Payment Terms

In B2B, terms are usually formalized in contracts. Example:

"Invoices are payable within 30 days. Late payments accrue 1% monthly after a 7-day grace period."

Ensure terms also appear clearly in:

• Invoices
• Online portals
• Email reminders

Advanced Payment Terms

Advance payments reduce risk for suppliers. They are common when working with new customers. You can request:

• 25%, 50%, or 100% upfront
• Milestone-based payments
• Terms for refunds or cancellations

Clearly define:

• Timeline of deliverables
• Deposit/refund policies
• Payment plan structure

Getting Paid Faster

Make it easy to pay:

• Use self-service payment portals
• Offer multiple methods (ACH, card, etc.)
• Automate collections and payment matching
• Store secure payment methods
• Provide digital receipts

With Paystand, you can sync invoice data with your ERP and automate the full AR cycle—no more chasing payments manually.

FAQs About Payment Terms

Payment terms aren’t just formalities—they are levers to control your cash flow, incentivize fast payments, and improve your bottom line. With the right tools and strategy, you can create a seamless AR experience for your customers and your team.

Want to improve your payment terms and get paid faster? Learn more about collections automation that simplify your receivables