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How to Word Payment Terms on Invoices

Topics: Finance, Credit & Payments, Management

Business owners face many challenges on a daily basis. One challenge that often causes a resounding groan from many business owners is invoicing.

If you are tired of having to continuously chase customers or make collection calls to try to get paid, then it may be time to revisit your accounts receivable process. One place to start is your invoice terms. Many businesses do not know how to write proper payment terms on their invoices, which is one of the main reasons why they struggle to receive on-time payments.

How To Word Your Invoices

Your language. When reviewing your invoice terms, start by looking at the language you are using. Do you come across as professional and polite? Try using phrases such as “please remit payment as soon as possible” or “thank you for your valued business”. You are making it clear that you expect payment while also being polite and appreciative, making customers more likely to pay your invoice.

Invoice layout. The next area to address is the overall layout of your invoice. Is it easy to follow and digest? Is it clear to the customer as to what goods and/ or services were delivered and what the customer is paying for? Are the goods and/ or services itemized clearly? For example, including a description of goods or services delivered, price per unit, tax, total price and so on are all important to include on your invoice.

Days vs. Net. Although invoice payments terms, such as net 30 or net 45 are standard business practice, they can be confusing to those who aren’t as familiar with business finance. Therefore, using payment terms such as “due on receipt” can be subject to a customer’s interpretation. You can avoid confusion altogether simply by making it clear as to the number of days payment is expected, such as “Due in 30 days”.

Late fees. If your business charges a late fee for late payments, then it is important to make this as clear as possible on your invoices. Simply adding a note on the invoice regarding your company’s late payment policy will ensure that you are paid on time. If you have an outstanding invoice that is approaching the due date, you can send the customer a reminder that the invoice is due, and also remind him or her about your late payment policy.

Shorter invoice terms. Although longer invoice terms may be appropriate for some customers, depending on the amount of their invoices, it may be in your company’s best interest to negotiate shorter invoice terms, such as 15 or 30 days. This is especially important if you are in the process of establishing new relationships with customers. If you are a small or startup business, then shorter invoice terms will ensure better cash flow to meet your business’ needs.

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Other Options for Payment Terms on Invoices

Now that you have some ideas as to how to word payment terms on your invoices, let’s explore some other options for payment terms on invoices to help guarantee faster payments.

Invoice submission and payment methods. Another way to ensure faster payments is to take a look at your available payment methods. Do you accept payment methods that are easy and convenient for your customers? For example, are your customers comfortable submitting electronic payments or are they sending you payments via snail mail? Try to adopt the payment methods that are easiest for your customers and that are also cost effective for your business.

Discount for early payments. A common invoice option is to offer discounts for early payments. For example, offering a 1 or 2 percent discount on the total amount due on the invoice if payment is received within a specific time frame will motivate customers to pay their bills faster.

Payment reminders. As we briefly explored above, another way to ensure timely payments from customers is to send them periodic reminders. For example, if an invoice has payment terms of Net 30, and you have not received payment after two weeks, sending your customer a kind reminder that their invoice is due will help ensure that you receive payment within the 30 days.

The best part is that you do not have to make calls or send emails to do this. You can easily set up auto-reminders a certain number of days prior to the actual due date on the invoice.

Timely invoicing. Another effective way to ensure timely invoice payments is to ensure that your business sends an invoice after a job is completed or after a good and/ or service is delivered. Having a set invoice process will make this easier. The longer you wait to send an invoice, the less likely the customer is to pay.

Maintain relationships with customers. Perhaps one of the easiest ways to ensure that you receive on-time payments from customers is to maintain good, open, and honest relationships with them. A good rapport and open communication with your customers can go along way and is also the best way to address any payment concerns.

Although there are a number of reasons why customers do not make timely payments or allow their accounts go into default, businesses are more in control of these issues than what they may think. Making adjustments to your invoicing process, offering clear payment terms and multiple payment methods, and writing payment terms on invoices are all highly effective methods to ensuring timely payments from customers and ensuring a healthy cash flow for your business.

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