Ηaving and keeping total control over the invoicing process from the invoice creation and emailing to the eventual payment is critical. Not only for your cash flow but also for your p\rofessional reputation. The choices you make regarding the payment process matter. Planning well before setting the invoice due date is crucial. That is the reason we have decided to discuss the typical payment terms for contractors and SMBs, including the much-used net ones.
To create the perfect invoice, you need to build a strong payment terms and conditions section. Describing clearly and in detail, your payment terms will result in your clients knowing when and how to pay you for your services. At the same time, any prompts like discounts or late payment penalties should also be stated a priori. All this information can prevent clients from paying late and cash flow problems from arising.
So, let’s dive into the range of the typical payment terms for contractors, like you, and how you can work with them when invoicing a client.
Payment upon receipt or COD (Cash on Delivery)
This is a straightforward payment term, but it’s generally not particularly popular amongst the clients’ circles. The immediate payment signifies that the payment due date for the products/services rendered is within 24 hours from the time that the client receives the invoice.
Naturally, this kind of payment term needs to be accompanied by other payment options to accommodate your clients. Consequently, if the payment is not settled, the seller/provider of services can reclaim the totality of their goods or deliverables.
The Net 10,30 and 60 terms
The most typical payment term for contractors (and businesses, overall) is net payment. It means that an invoice is due in a specific amount of days from the invoice date. The indication “Net 10”, “Net 30” or “Net 60” written in the corresponding section in your invoice tells the client that they need to make the payment in 10, 30, or 60 days respectively from the issue date of the invoice.
Of course, you can set any number of days that you’re comfortable with. For example, “Net 7” or “Net 90”. The net payment terms for your business transactions depend on the industry you’re in and the nature of your business.
If your client is unfamiliar with this term, and to avoid any misunderstanding, write it explicitly. You could rephrase “Net 30” as “Payment due to be settled in 30 days from the issue date” or “You are kindly requested to make the payment within 30 days.”
End of Month term (aka EOM)
This payment term refers to the obligation that a client has to pay an invoice by the end of the month. However, there are variations to this net payment. You could use a “net 5 EOM” which means that the client has to make the payment within 5 days after the end of the month.
The Prepayment term
A client may be required to pay within a day or a pre-agreed period of time. There is also a number of businesses that ask their clients to pay a specific percentage in advance. This payment term is also called payment in advance (aka PIA). Prepayments work as a kind of safety net for business owners and freelancers in particular. For example, a website designer can ask for a 50% payment in advance before working on a project.
Apart from securing professionals from having to cope with a potential unpaid invoice, a first payment can help out with unforeseen project-related expenses. However, advance payment should be asked after a total estimate of a project has been made. Then, clients will also feel secure and will have trust in your working ethos.
The 2/10 Net 30 Principle
This principle is linked to the addition of a discount to the net payment terms. Punctual payments are valuable and not that common. So, you should always reward responsible clients. Let’s say that a client pays you in the first 5 days of the 30-day payment period. It’s apparent that they deserve to get a discount of 3% or however much you see fit. This percentage and the discount period are not definite. You can adjust them however you want, especially if you have tested that the profitable discounts you’ve set before, attract clients.
However, the above term seems like a mathematical formula. Therefore, feel free to put the appealing offer into simpler words. Think of phrases like “If the payment due is made within the first 7 days from the invoice date, then a 4% discount will be applied to the total amount”.
The secured business line of credit
In this case, you may have an agreement with your clients that offers them credit on the services/goods they’ve bought. In other words, they don’t have to settle their debt in one go. Instead, they can opt to pay you off in monthly or quarterly installments.
This payment term entails a certain degree of business risk. Thus, you should accept this kind of arrangement only with large, established companies or with trusted clients that stay true to their promises.
All in all, the net payment terms, as well as all the typical payment terms for contractors that we’ve analyzed, aim to get you paid on time. You can always choose the ones that work for you and your clients. The right payment terms will smoothen your transactions and help you stay on good terms with your clients. Be it net 30, a series of installments, or an instant payment, as an independent contractor, you should create your own payment terms and conditions.
Set your payment terms in Elorus
Invoicing your clients is a decisive process for your business welfare and cash flow. You can always adjust your payment terms in Elorus; as you prefer and per client. You can opt for payment due period or pick a specific date from the calendar as the due date.
Aside from the variety of payment terms, you can choose from, Elorus stands by you even after you’ve sent your invoices. It keeps you updated by sending key notifications about payments. Every time a client pays an invoice, Elorus will let you know. Even when an intended payment has failed, the platform will inform you about it. Last but not least, on the final day of a payment’s due period, Elorus will also send you a notification.
Apart from these standard kinds of reminders, you can always create new ones about issued, overdue, or about to be overdue invoices. These reminders come with an email that is sent to your clients at the right time to prompt them to fulfill their financial obligation. If these functionalities seem helpful, sign up and experience them firsthand!