Invoice
payment terms

Payment terms are the agreement about when an invoice must be paid. They decide your cash flow more than any other line on the invoice, and they are yours to set: GOV.UK is clear that you can set your own payment terms, including discounts for paying early and payment upfront. What the law does is fill the gap when nothing was agreed, and cap what is reasonable for business and public sector customers.

The common terms

The invoice due date calculator turns any of these into a date.

What the law says

If you agree a payment date, GOV.UK says it must usually be within 30 days for public authorities or 60 days for business transactions. You can agree a longer period than 60 days with a business, but it must be fair to both businesses.

If you do not agree a payment date, the law says a business customer's payment is late 30 days after either the customer gets the invoice, or you deliver the goods or provide the service, whichever is later. That default protects you even if you forgot to state terms at all.

Choosing your terms

Shorter terms bring cash in sooner, but only if the customer can meet them. Large organisations pay in fixed payment runs, often weekly or monthly, and an invoice due in 7 days may simply wait for the next run. For them, a term that matches their run, such as 30 days, may actually be paid faster than one they cannot meet. For individuals and small businesses, 7 or 14 days is normal.

For big jobs, reduce what is owed at any time with a deposit or stage payments rather than relying on long terms for the whole amount.

Early payment discounts

You can offer a discount for paying early, such as 2% if paid within 7 days. If you are VAT registered, VAT Notice 700 sets out how to show the discount so the VAT is right whether or not the customer takes it: either issue a credit note when the discount is taken, or state the discount terms on the invoice with the wording HMRC recommends.

Writing terms on the invoice

State the term and the date it produces, for example "Payment due within 30 days, by 30 April". A date removes any argument about when the clock started. Add how to pay and the reference to use.

If you intend to charge interest on late payment, say so in your terms. With a business customer you can claim statutory interest even if your terms do not mention it, unless your contract sets a different rate. The late payment interest calculator shows what that adds up to.

When terms are ignored

A payment is late the day after the due date. Chase it promptly and in writing; the guide on chasing an unpaid invoice has the sequence. For a business customer, you can then add statutory interest and fixed compensation, explained in charging interest on late payments.

How long each term really is

The name of a term and the wait it produces are not the same thing. End-of-month terms in particular can stretch much further than they sound. The chart shows the days from invoice to due date for an invoice dated on the 15th of a 30-day month.

Days from an invoice dated the 15th to its due date

• Due on receipt0 days
• Net 77 days
• Net 1414 days
• End of month15 days
• Net 3030 days
• 20th of next month35 days
• 30 days EOM45 days
• Net 6060 days

Choosing terms by customer

Terms and your cash flow

Payment terms decide how much money is tied up in unpaid invoices at any time, your accounts receivable. A business invoicing £4,000 a month on 60-day terms has roughly £8,000 waiting to be paid at any moment; on 14-day terms, less than £2,000. Shorter terms, deposits and stage payments all shrink that figure. If cash is tight, invoice finance lets a business borrow against unpaid invoices, at a cost.

A worked example: the same month under different terms

A gardener invoices three customers on 15 September for £600 each. The household pays on completion, so the money is in the bank that day. The small shop is on 14 days and pays on 29 September. The letting agency's terms are 30 days end of month, so its payment is not due until 30 October, six weeks after the work. Same work, same price, three very different waits. Over a year, customers on long terms can tie up a large share of a small business's income, which is why it pays to match the term to the customer rather than using one term for everyone.

When the law sets the date for you

If you never agreed a payment date, you are not left without protection. For a business customer, the law treats payment as late 30 days after the customer receives the invoice or you deliver the goods or service, whichever is later. From then, statutory interest and fixed compensation can apply. For a household customer, there is no such default under the Late Payment Act, so agree the terms before you start work and put them in writing.

Putting terms in the contract, not just the invoice

Terms are strongest when agreed before the work starts: in a quote the customer accepts, a written contract or an order confirmation. An invoice that states terms the customer never agreed can still set a date, but it gives them room to argue. Put the same terms in three places: the quote, the confirmation, and every invoice. The guide on quote vs estimate covers what a quote should say.

Terms that include late payment

Your terms can also say what happens if payment is late. For business customers you can state that you will charge statutory interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998; you are entitled to it even if you do not say so, but saying so changes behaviour. If you set your own contractual late payment rate instead, it replaces statutory interest, so make sure it is a substantial remedy. The guide on the Late Payment Act explains the rules.

Common questions

Do payment terms count weekends? Yes, unless your terms say working days. Thirty days means thirty calendar days.

Can a customer change my terms by sending a purchase order with different ones? Whose terms apply depends on what was agreed and when, which is why agreeing terms in writing before the work starts matters. If a customer's purchase order states longer terms than you quoted, raise it before you accept the order.

Should I offer an early payment discount? It can speed up payment, but it costs you the discount on every invoice paid early. Try shorter terms and prompt reminders first. If you are VAT registered, follow the VAT rules for discounts in VAT Notice 700.

What should I do when the due date passes? Chase the next working day. The guide on how to chase an unpaid invoice has a schedule, and the late payment interest calculator shows what a business customer owes you in interest.

Reviewing your terms each year

Once a year, look at when each customer actually paid, not when they were due to. A customer who always pays ten days late on 30-day terms is really on 40. Talk to them, shorten the terms, ask for a deposit or add a reminder a few days before each due date. A customer who always pays on the day is worth keeping on the terms they have. The invoice due date calculator makes it easy to set dates, and a regular review keeps the dates meaningful. The 30 day payment terms guide looks at the most common term in detail.

Good payment terms are short, clear, agreed in advance and written as a date on every invoice. Everything else in this guide is a way of making those four things true for each customer you work with.