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What are Invoice Payment Terms? Meaning and Applications

Gustav Wagner
By Gustav Wagner
Gustav Wagner

Gustav Wagner

Gustav Christopher Wagner “Gus” began his career in investment banking and equity trading before transitioning to fintech entrepreneurship. With 15 years’ experience in the financial markets and a CFA charter, he has developed a deep expertise in communicating complex financial concepts clearly and effectively. Based in London, UK, Gus is a bilingual financial writer in English and German, serving clients ranging from innovative start-ups to Fortune 500 companies. His writing portfolio includes topics such as banking, fintech, ESG investing and emerging technologies, with a particular focus on bridging the knowledge gap between the US and European markets. Gus has deepened his expertise with coursework in FinTech from Oxford and Sustainability from Cambridge. When he’s not writing about markets and technology, he’s an advocate for animal rights and enjoys exploring London’s parks with his dog.

Updated February 5, 2025
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Understanding invoice payment terms is essential for the smooth operation of any business in the UK, particularly for high-growth businesses. 

We’ll guide you through and explain what payment terms are, why they’re crucial, the relevant legal requirements, best practices for implementing them, and tips for how to optimise them for your specific business needs.

What Are Invoice Payment Terms?

Invoice payment terms detail the conditions under which your clients are expected to pay for goods or services. They cover the payment process, stipulating:

  • When payment is due (the payment deadline)
  • How the payment should be made (acceptable payment methods)
  • Any penalties for late payments

Clear payment terms are necessary for maintaining a stable cash flow, avoiding misunderstandings, and establishing lasting business relationships.

The key components of typical payment terms include:

  • Due Date: This specifies when the invoice amount is payable, such as ‘end of the month’ or ‘number of days’ from the invoice date.
  • Payment Methods: These are the ways a client can pay, such as bank transfer, debit card, credit payment, or online options.
  • Late Payment Fees: Details any penalties, like interest or late payment fees, applied to unpaid invoices.
  • Early Payment Discounts: Optional incentives to encourage prompt payment before the payment deadline.
  • Currency: Which currency payment should be made in — generally GBP for UK businesses.

Why Are Payment Terms So Important?

Clearly defined common invoice payment terms are a necessity for several reasons: 

First, they help maintain a healthy, steady and predictable cash flow. Your payment terms directly influence when money comes into your business. Shorter terms, like Net 7 (7 days to pay), get you paid more quickly than longer terms, like Net 60, for example. 

Having appropriate terms also helps with accurate financial planning and forecasting and helps avoid misunderstandings. When payment deadlines and methods are clearly stated on your invoices, clients are much less likely to be confused, and unpaid invoices are less common.

On a different note, payment terms must also meet certain legal requirements. UK law sets out rules on payment deadlines and what can be charged for late payment. Your terms must adhere to this legislation to avoid any legal issues. 

In essence, clear terms strengthen business relationships. When clients know when and how to pay you, you can establish a strong relationship based on trust. You may for example offer incentives like discounts for early or upfront payment or bespoke terms for larger or longstanding clients. This flexibility helps cater to your clients and their individual business needs. 

Well-defined payment terms ensure you, as a business owner, are paid reliably for goods or services rendered, leading to better stability and good relationships with your clients.

Examples of Common Invoice Payment Terms in the UK

Let’s look at some payment terms that are typically used in the UK:

TermDefinition
Net 7Due in 7 days
Net 14Due in 14 days 
Net 30Due  in 30 days
Net 60Due in 60 days 
Net 90Due  in  90 days 
EOMDue at the end of the month in which the invoice was issued.
IMImmediately due upon receipt of the invoice.
CWOCash with order (payment upfront at the time of order).
CBSCash before Shipment
PIAPayment in advance

Net 30 is a very common payment term for UK businesses. Immediate payment or cash before shipment (CBS), means your clients pay as soon as they get the invoice, improving your cash flow, although it won’t suit all businesses or all clients. 

Using ‘end of the month’ (EOM) terms means payment must be made by the last day of the month that the invoice was created. Cash with order (CWO) or payment in advance (PIA) requires your clients to pay you before work begins.

When Are Payments Due?

Payment due dates are calculated from the invoice date, not the date the client receives the invoice. For example:

  • Invoice date: 19th January, payment terms: Net 30
  • Payment deadline: 18th February (30 days from 19th January)

It is important to make the due date very clear on all invoices.

UK Regulations on Payment Terms

There are several UK regulations that small businesses must take note of:

  • Statutory Payment Period: UK law states that payment should be within 30 days of the invoice date unless an alternative payment schedule is explicitly agreed by both the supplier and the client.
  • Late Payments and Statutory Interest: To protect suppliers, there are rules in place relating to late payments between businesses. Statutory interest, which is calculated as 8% over the Bank of England base rate, can be added to overdue amounts.
  • Reporting Requirements: Large companies need to publish reports on their payment performance starting January 2025. This will include data about late payments, to keep the whole payment system transparent.

Has your business fully realised the potential payment of automation?

Complete AP efficiency can shorten your payment cycle materially and save your business money. 

How to Write Payment Terms on an Invoice

One way of ensuring you get paid fast is clearly stating your desired payment terms on every invoice. 

Be concise when stating your terms on each invoice. For example, don’t just use a vague phrase like ‘pay as soon as possible’; be specific, and use precise dates. 

Offer early payment discounts as a small incentive, like 2% off for prompt payment within 10 days, as this may speed up your payment times. 

Use shorter terms like Net 7 or 10 rather than Net 30 when possible, since electronic payment methods make it easier to get paid faster, which helps with your cash flow. Make sure you discuss payment terms with all clients before taking on a new job or starting new work, and always get an agreement on terms in writing. 

Assess your relationship with each client — if a client is well-established and always pays promptly, you may be comfortable offering longer terms like Net 60, while new and higher risk clients would generally be placed on shorter payment terms. 

Send friendly reminders if you notice a payment might be late, as this can help avoid late payments and maintain positive relationships. Be sure to enforce your payment terms for late payments consistently, and add interest charges when payments are not on time, since late payments negatively impact your business. 

Finally, regularly review and update your terms to ensure they are still meeting your business needs, especially if your circumstances change.

How to Clearly State Payment Terms on Invoices

When you tell customers about paying, put all the details on the invoice. This helps them pay on time.

  • Say when payment is due. For example, “Net 30” or list the deadline date.
  • Explain your late payment policy.
  • If you give a discount for fast payment, say that.
  • List how customers can pay you — by cheque, bank transfer, etc.

Use clear words like:

“Please pay within 30 days of the invoice date.”

“Pay in 7 days and get a 3% discount.”

“There is a £20 late fee if paid after the due date.”

Highlight the terms in a box or bold. This makes them easy to see.

Use a polite tone like “Timely payments are appreciated within 30 days.” Don’t demand.

Include any account numbers, website payment links, or mailing addresses to make paying simple.

Always say what currency to pay in. For example, “Pay in GBP within 30 days.”

Example Standard Payment Terms

Payment is due within NET 30 days from invoice date. To receive a 2% early payment discount, please pay within 10 days. We kindly ask that you pay within terms to avoid late payment penalties. All payments must be made in GBP. Please direct payments to the following account:

Account Name: Your Company Name Ltd.
Sort Code: 00-00-00
Account Number: 12345678

Late Payments

Invoices paid after the due date will incur a late fee plus interest at 8% above the Bank of England base rate. We value your business; please reach out if you anticipate payment delays so we can discuss solutions.

How to Specify and Regulate Payment Methods with Payment Terms

It is really important when specifying acceptable payment methods on your invoices that you outline all the methods you will accept for clients to pay you. 

Common payment methods are bank transfers or BACS, where you should always provide the correct bank account details, and note if the invoice number should be referenced. 

You can also accept debit or credit card payments, so clearly state which cards you take and consider setting up a merchant account if you do not already have one. 

You may also want to accept online payments through a portal like PayPal, so add the proper log-in details and note any fees for transactions or other service charges. 

If you accept cheques, list the business mailing address and other specific instructions per your company policy. You can state if you accept cash for face-to-face transactions. Make sure the payment methods you outline comply with all requirements from banks, payment providers, and relevant regulatory bodies.

International Payments

If you deal with international clients, you should specify payment terms clearly. Payment will generally be expected in GBP. Provide your IBAN and SWIFT/BIC numbers for international wire transfers

Be clear about which party will pay any fees for international bank transfers or currency exchanges. Be aware global payments may take longer to process, so take this into account when specifying due dates.

How to Handle Late Payments

Even with very clear payment terms stated, some clients unfortunately still may not pay their invoices on time. Here are a few tips for dealing with late payments: 

Send polite payment reminder emails or make reminder calls a few days before the payment is due. Follow up with the client if the payment is missed past the due date, as there may be an issue and they may just need you to send another copy of the invoice. 

Offer quick and easy payment options by including a link to your payment processor to make it simple for your clients to pay. Discuss potential payment plans if that would help, like smaller partial payments spread over a longer period. 

Always enforce the late fees stated in your terms if payment is late. In some cases of non-payment, legal demands like a solicitor’s letter or statutory demand could be appropriate, however this will likely impact your relationship with that client. 

If a client has a history of late payments, you may wish to request payment upfront before doing any additional work for them.

Tips for Improving Your Payment Terms

Take time to evaluate whether your current payment terms are meeting the needs of your business. 

Here are some things to try:

  • Look at your payment terms regularly. Make sure they fit your business and industry.
  • Check if your payment time matches what others in your industry do. See if shorter terms could improve cash flow.
  • Review your late fees and deadlines. Think about offering an early payment discount.
  • You could give long-time customers more time to pay. This can help the relationship. But some customers might need shorter terms.
  • Make invoices and send them out quickly. Use software to help with this.
  • Offer more ways to pay. This makes it easier for customers.
  • Explain clearly to overseas customers how international payments work.

Using Automation to Manage Invoice Payments

Well-defined payment terms are important to the success of every UK business, particularly high-growth businesses. If you follow all of the best practices for clear and consistent communication and enforcement of terms you will help to maintain good business relationships and create a more stable cash flow for the success of your company.

And also remember to pay your suppliers on time!

To take invoice management to the next level, automating the entire accounts payable process with Tipalti Invoice Management can help you realise the full benefits of AP efficiency and provide complete visibility and control over supplier payments. 

Find out more about how Tipalti can help you and access our ‘Holy Grail of Accounts Payable’ whitepaper. 

Note: This article provides guidance on invoice payment terms based on information available as of January 2025. Payment regulations and business practices are subject to change. Always refer to the latest UK government guidelines and seek advice from a qualified legal or financial professional for your specific business circumstances before implementing any payment policies. The information provided in this article is for general guidance purposes only and does not constitute legal, financial, or accounting advice.

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