Definition

Payment terms define when payment is due after an invoice is issued. "Net 30" means full payment is due within 30 days. "Net 60" means 60 days. "2/10 Net 30" means the payer can take a 2% discount if they pay within 10 days, otherwise the full amount is due in 30. Terms are negotiated between contractor and client (or contractor and vendor) and written into the contract.

Why It Matters

Payment terms directly control your cash flow cycle. A contractor who invoices on Net 60 terms may wait two months after completing work to get paid, but still needs to pay workers weekly and suppliers on Net 30. That mismatch creates a cash gap. Tightening terms (Net 15, upfront deposits, progress payments) is one of the most effective ways to improve cash flow without reducing profit.

Field Example

A contractor invoices $50,000 on May 1 with Net 30 terms. Payment is due May 31. If the client pays on May 31, no problem. If the client pays on June 30, the invoice is 30 days past due. The contractor can charge a late fee if the contract includes one (e.g., 1.5% per month on overdue balances).

Calculation / Formula (if applicable)

Due Date = Invoice Date + Net Days (e.g., May 1 + 30 = May 31)

Early Payment Discount = Invoice Total × Discount % (e.g., $50,000 × 2% = $1,000 savings)

Software Application

Store payment terms per client and per vendor. Auto-calculate due dates when invoices are created. Flag invoices approaching or past due date. Support late fee calculation for overdue invoices.

Tooltip Version

Payment terms set when invoices are due — Net 30 means pay within 30 days. Shorter terms improve your cash flow; longer terms increase the risk of running short between invoicing and collecting.

Payment Terms