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What payment terms are and why they matter

Payment terms are the rules your business sets for how and when customers must pay for your goods or services. They form part of a sales contract under contract law.

Add your payment terms to invoices and contracts so your customers know:

  • what payments methods you accept – for example, cash, bank transfer or credit card
  • when you expect payment – for example, all up front, installments, on delivery or after 30 days
  • if you offer credit and the conditions
  • how you collect overdue payments and debts.

Clear payment terms can help reduce financial risk and build trust with your customers. Without clear terms, customers may pay late, dispute the payment or refuse to pay. This can affect your income, increase your costs and put your business at risk.

Credit terms

Credit is common in business-to-business transactions. You give the customer goods or services, and they pay you later. For example, they pay in 7, 14, 21 or 31 days.

Offering credit can increase your sales, but it also carries risk. If a customer doesn’t pay on time (or at all) it can affect your cash flow.

To reduce risk:

  • run credit checks on customers before offering credit
  • set limits on how much credit you offer
  • make it clear that customers don’t own the goods until they’ve paid in full.

Choose the credit terms that suit your business. If you’re not sure what terms to offer, get help from your industry association or talk to a business adviser.

Late payments and debts

Have a clear process for chasing up customers who haven’t paid on time.

Start with a polite reminder by phone or email. Some late payments happen because the customer forgot, and a calm approach can resolve the issue without harming the relationship.

If payment still doesn’t come through, you can send a letter of demand or use a debt collecting service.

Chasing payments takes time and money. In some cases, the best option is to stop chasing and write off the debt.

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