In the business world, there isn’t a more important document than an invoice. This document is what you send your clients to receive payments for goods and services exchanged.
But not only that, an invoice is a document that also states when the client has to pay and the total amount. These are called payment terms. All in all, this is a document that is highly convenient for both parties. Without an invoice, you can expect a few problems to emerge during the payment process.
But not a lot of people know how to write these clauses on invoices. And if you struggle with that, this is the article for you. With all that said, let’s start.
Why Are Payment Terms Important?
First things first, not everyone understands why having these terms is important in an invoice. To better clarify the point, just remember that payment terms are put in place to make sure the process goes smoothly. In addition, they notify clients when they have to make the payments.
But it goes far deeper than that. Specific governing laws state that these terms are a must in order to prevent future disputes. This means that, depending on where you live, you have to add these terms.
So if you want a better understanding, smooth operating, and staying on the good side of the law, make sure to add them. And now, let’s see exactly how to do that.
How To Write An Invoice Payment Terms
1. Always State the Terms of Sale
The first and most important aspect of invoicing is to always state the terms of sale. This is also the first term you add to this document. The reason why this one is so important is that it eliminates confusion with the client.
If the client clearly knows everything in regards to the sale such as the cost, the quantity of purchase, the delivery date, the method of payment, and other elements, then that will eliminate confusion. Make no mistake about it, the terms of sale are are hugely important and it might take you an invoice or two to get the hang of it.
Ultimately, each industry has different ways of stating the terms of sale. If you’re doing cross-country transactions, then other things need to be taken into accounts such as duties, international taxes, and other regulations that make sure the process goes as smoothly as possible.
2. State Whether Or Not You Want Payments in Advance
Yet another important aspect of invoicing terms is adding clauses in advance. For larger transactions or transactions involving large quantities of goods, you might want to get some cash in advance. This isn’t anything out of the ordinary as chances are you’ll likely have to cover costs.
In advance payments are very common in the delivery industry and service industry, where certain costs can be covered with the client making payments in advance.
In an invoicing document, payments in advance are labeled as PIA and have their own section. Whenever doing your invoice, do mention PIA if there is a need for that. If you have no idea how to do that, however, make sure to visit Billdu as it is one of the best online invoice generators out there.
3. Mention Instant Payment Terms.
Similar to payments in advance, instant payment terms mean we wish to be paid instantly once the delivery of goods has been completed. Much like the previous point, this is a very common term that many businesses implement in their invoices.
More common names for such a term are “Cash on Delivery” and “Payable on Receipt”. You can find both names on an invoice but there is one more important thing to mention with instant payment terms.
If we don’t mention this term in our invoice, then the client will have no idea whether or not we want cash on delivery. Thus, if you want a cash-on-delivery term, make sure to explicitly state it in your invoicing document.
4. Specifically State When You Want To Get Paid
Writing the terms of sale is one thing, but specifically stating when you want the payment is another. We already covered things like instant payment. And while that is yet another specification of when you want to get paid, there are other options out there.
These are called Net Payment options and they tell the client that the payment is due X days from the invoice date. Depending on what you write, that will tell the client exactly how much time they have.
Some of the more common invoicing payment terms for this include Net 7, Net 21, Net 30, etc. In addition to all these, you can also include a term called “EOM”.
EOM stands for “End of the Month”, and it means that you expect the payment at the end of the month. There are many more similar terms, so let’s go ahead and explain them.
5. 15 MFI
This invoicing term states that you expect payment due on the 15th. In most cases, we take the following month and not the month when the invoice has been made. If the invoice has been made on the 7th of May and we include a 15 MFI, we expect the payment on the 15th of June.
6. 4/10 Net 21
This is a combination of multiple terms. The Net 21 means you expect the invoice in the following 21 days, but the 4/10 means that the client will receive a 4% discount if they pay within the first 10 days. These are very common terms that many include as a means to motivate the client to pay early.
7. X% Upfront
This one is quite simple but yet again, highly common. X refers to a percentage number that the client has to pay in advance. 20% upfront means the client has to pay 20% of the total price before they receive their goods. The scenarios where this is common practice are big projects or big invoices involving hundreds of thousands of dollars.