Want To Get Paid On Time? Pick The Right Payment Terms

Written by
Marissa Saini
Last Modified on
December 19, 2023

In business, there’s nothing worse than payment delays. Prompt payments fuel your business’ financial health and growth. Payment delays, on the other hand, can have a serious knock-on effect on your finances, impacting everything from your day-to-day operations to expansion plans. This is especially true for small businesses that work with limited resources to begin with. How do you ensure your clients and customers pay you on time so that you don’t end up with a crippling cash problem? You make sure you have strong payment terms, that’s how.

We commonly associate terms of payment with invoices, but their impact goes deeper. Issuing invoices with well-defined and carefully thought out payment terms significantly lowers your risk of payment delays while including them in your contracts will ensure that your transactions proceed smoothly. Payment terms are also essential to keeping your accounts receivables (money owed to a business, such as payments from customers) and cash flow in good health. And let’s not forget that payment terms also define how and when you pay your suppliers. Thus, they also contribute to effective management of your accounts payables (money owed by a business, such as payments to suppliers and creditors) and relationships with suppliers.

In this article, we will discuss the meaning of terms of payment, the ways in which they benefit your business, and how to pick the right payment terms for your needs. You’ll also find a comprehensive list of payment term examples used globally. Read on.

What are terms of payment?

Payment terms, or terms of payment, spell out how and when your customers pay you for your goods and/or services. They include specific details such as the amount of payment due, the date by which the buyer must pay, the ways in which they can pay (by cash or credit card, for example), and the currencies in which you accept payment (in the case of international transactions). Payment terms hold additional information for buyers such as penalties for a missed or late payment and early payment discounts they can avail of, if any.

Why do you need payment terms?

Let’s look at the various ways payment terms benefit your business:

  • First and foremost, they ensure you get paid on time. Specifying a due date, giving buyers options to pay conveniently, and letting them know there are repercussions for being late or defaulting helps you avoid late payments.
  • Payment terms improve cash flow. By creating a predictable and reliable payment schedule, they let you know exactly how much money you have at a given time. This allows you to plan your expenses effectively, whether it is to take care of operational costs or to invest in renovating your offices, developing a new product, or expanding to a new market.
  • They help you build solid relationships with customers and suppliers. Offering mutually beneficial payment terms not only ensures loyalty but has the power to draw new buyers and suppliers as well.
  • Well-thought-out and clearly communicated payment terms are your protection during disputes with customers.
  • Payment terms help you keep unnecessary costs down. Let’s say your customer misses a payment deadline and you are forced to take out a loan to take care of expenses that the payment amount was meant to cover. The interest you pay on the loan is money you need not have spent had the customer paid on time. And let’s not forget the cost of business opportunities you lose out on due to a shortage of funds as a result of delayed payments. When you implement strong payment terms in your dealings with customers, there are fewer payment delays, which does away with the need for unplanned expenditure.
  • Payment terms relieve stress. Late payments are a leading cause of negative cash flow because they create an imbalance between a business’ incoming and outgoing payments. Negative cash flow, in turn, is widely considered to be a source of stress for small and medium-sized businesses. So, by implementing strong payment terms, you can keep your cash flow positive and stay stress-free.

Now let’s focus on the importance of payment terms from an invoicing and accounts receivables perspective. Since, as businesses, we have very less control over setting terms of payment for our accounts payables.

Who sets payment terms?

Terms of payment are usually set by the business owner or their head of accounts and agreed upon by the customer/client at the start of a new contract or transaction. What’s important to remember is that payment terms differ from business to business and what works for another might not work for you. For example, some companies prefer cash payments but this is unsuitable for a business with predominantly online sales. So, you must pick payment terms that fit your business.

What do terms of payment include?

While terms of payment might differ depending on contractual provisions and business types, a standard payment term includes:

  • Invoice number, which helps you track the invoice
  • Invoice amount, which is what the buyer owes you for goods or services
  • Invoice date, or the date on which the invoice was issued
  • Payment due date, or the date by which the buyer must pay. This depends on the exact payment term used – for instance, payment within a week or 30 days of the invoice (see types of payment terms below)      
  • Accepted payment methods, such as cash, cheque, credit card, wire transfer, and so on (more on this later)
  • Accepted currencies
  • Incentives for buyers, such as an early payment discount
  • Penalties for late or missed payment
  • Payment instructions, such as how and where to make credit card payments, who to address cheques to, and so on.

Where to list payment terms on invoice

Here is a typical example of how payment terms are placed on an invoice:

As you can see in the sample:

  • The invoice number, invoice date, and payment due date go on the top right corner of the invoice. They are placed directly opposite your name, address, and contact details, and those of the buyer.
  • The next big section on the invoice is a table comprising a description of the goods or services provided by your company, their quantity, and price per item. Rounding up this table is the total amount due for payment, ideally in bold print.
  • Right after this section, you can place your accepted methods of payments, accepted currencies, and payment instructions if any.

Payment methods can make or break your payment terms

It’s good to keep your customers’ preferences in mind while setting your invoice payment terms but your primary concern should be your cash flow needs. To this end, you must carefully consider your accepted payment methods – cash, credit card, cheque, electronic transfer, etc – as your choices can impact your cash flow in good and bad ways. Ask yourself these questions:

How fast will the money reach me?

The faster the payment gets through, the better it is for your cash flow. Accepting cash is the fastest way to get paid, but it isn’t practical in an increasingly cashless world, and not at all for purely online businesses. Cheques take a day or more to be credited. Not only are they slower, they are fast losing out to online payment solutions. Singapore, for instance, aims to be cheque-free by 2025. If you’re looking for a payment method that’s fast and also convenient for your customers, you might want to consider email invoices. An email invoice comes with a payment link. The buyer clicks on the link, pays with a credit card or through a payment processing system, and the amount is in your account in no time.


Are there associated fees?

Not all payment channels are free. Credit card payments, for example, are convenient and considerably fast but they might include a processing fee that you will have to cover. Of course, you can choose to pass the fee on to your customer but you will have to inform them in advance of this and include it in your payment terms. Passing on additional fees can put off customers, so consider if it is a risk worth taking.

While your best interests come first, you should still try to provide your clients with as many payment options as possible. Most customers have strong preferences when it comes to payment methods. Digital payments via mobile wallets, for example, are increasingly popular among users for their convenience. Apart from individual preferences, many countries have general payment preferences. In Singapore, credit cards are still the preferred mode of payment while mobile wallets are on the rise. The trick is to zero in on payment methods that benefit you as well as your clients.

Whatever mode of payment you choose, Aspire helps you get paid that much quicker. Our Invoice Management platform sends your customers alerts for upcoming and overdue payments and notifies you as soon as you get paid. So, sit back and relax while we do the heavy lifting.

Different payment methods, with pros and cons


The steady transition to digital payments means cash payments are on the decline in Singapore and elsewhere in the world. However, around 40% of SMEs (small and medium-sized enterprises) in the island-nation still conduct the majority of their transactions in cash, according to a survey of small business practices in the Asia-Pacific. Many businesses prefer cash because it is the fastest way to get paid and there are no associated fees. However, there are disadvantages as well. Not all customers are comfortable paying for large purchases in cash. Storing large amounts of cash in the office, counting it every day, and making regular trips to the bank to deposit it are both a hassle and risky. Additionally, insisting on cash narrows your customer base in an increasingly digital and globalised world.


Cheques are usually associated with large purchases and welcomed by many businesses. There is no extra charge for accepting a cheque and you don’t have to worry about storing stacks of cash. However, cheques are not the fastest mode of payment as you have to wait for the bank to clear the cheque before the money is credited to your account. There is also the risk of being stuck with a fake cheque or a cheque that bounces due to insufficient funds in the customer’s account.

Credit and debit cards

Most businesses facilitate debit and credit card payments purely because customers prefer them for their safety and convenience. Offering credit card terms of payment also encourages customers to make large and frequent purchases, which is always good for business. And you don’t have to worry about dealing with cash or cheques. The biggest drawback to this payment method is that you might have to pay a transaction fee, which is a small percentage of the payment amount. You might also have to wait a few days before you receive the money in your account.

Mobile wallets

Mobile wallets are a rising star in the digital payments sphere, as mentioned earlier. The reason businesses offer this payment option is because it is extremely easy for customers to use – all they need is a smartphone. Users can either store their debit and credit card details on their mobile device or top up their wallets with cash when they need to make a purchase. The checkout process is quick and simple, so there is a low risk of a customer abandoning a purchase due to inconvenience. Mobile wallets are also fairly secure as they come with data encryption. While offering this payment method in your payment terms is recommended, you need to be careful that you pick the best-performing wallet. This is because each country or region has multiple wallets in use but not all may offer the same user experience.

Email invoices

Also mentioned previously in this article, email invoicing is a quick and efficient way to get paid while being considerate of your customers’ convenience. However, as is the case with all email, your email invoices might get flagged as junk mail and never reach your customer, which is entirely out of your control. Email invoicing is also more suited to businesses that sell services rather than goods and is a bad fit for companies with a large number of offline customers. Additionally, you might incur charges for using a service to send email invoices.

Electronic bank transfer

This option allows you to receive large amounts without paying any fees and without the trouble of dealing with cash or cheques. However, most people aren’t comfortable transferring money into a business bank account. For this reason, electronic bank transfers are commonly associated with accepting payments from other businesses rather than from individuals. You’ll also get paid only after the bank processes the fund transfer, which might take a few days.


AutoPay allows users to have an upcoming payment automatically and securely deducted from a default debit or credit card or straight from their bank account. This is a good fit for businesses that deal with subscriptions (Netflix, Microsoft, etc) and have customers who make recurring payments as it lowers the risk of late and missed payments. On the down side, you must be wary of overdraft, which happens when there are insufficient funds in the customer’s card or account to complete the payment. This results in a payment reversal and leaves you chasing the payment issue with your customer.

With Aspire’s Receivable Management, you can set up multiple payment collection accounts and monitor them in real time on a centralised dashboard.

7 tips on using payment terms effectively

The choices above will have given you an idea of what payment methods suit your business best. But to make sure that your payment terms work to your absolute advantage, here are seven best practices you must follow:

Pick a shorter payment term

A week instead of the standard 30 days payment term, for example. While the likelihood of a late payment is stronger with a shorter payment term, you’ll still get your money faster than with a longer term of payment. Payment terms are getting shorter in business these days, so you don’t have to feel guilty about giving your clients a smaller payment window.

Reward early payment

Offer an early payment discount, for example. Your customers will not only be eager to pay early but won’t mind a shorter payment term.

Enforce late fees

Send reminders before the due date and in the event a customer is late with their payment, don’t be afraid to follow up. Call them and email them until they respond. Chasing defaulters isn’t fun but it must be done if you want your money as quickly as possible.

Provide multiple payment and currency options.

Payment flexibility will draw more customers your way. 

Set a clear payment deadline

If you’re using a seven-day payment term, for example, specify that payment is due seven days after delivery or seven days after the invoice date, whatever the case may be.

Use simple, precise language

If the wording in your invoice payment terms is vague and incomprehensible, it will naturally confuse your customers and cause payment delays.

Send invoices out on time

Timely payments begin with timely invoices. Aspire’s Invoice Management helps you create professional invoices and send and manage them effortlessly so you get paid faster.

Payment term challenges and solutions for small businesses

Payment lags are a nightmare for small businesses, which is why they must be extremely vigilant when setting their payment terms. Here are some payment term challenges small businesses face, and their solutions:

Unpaid invoices

Payment collection is a major problem area for small businesses. This is compounded by the fact that they are often wary of chasing late payers because they don’t want to offend them and lose clients. Using strong, clearly worded payment terms can significantly ease this problem. Inform your customers beforehand about exactly when you expect them to pay, let them know there are consequences for late payment, and set up automated reminders to reduce delays.

Multiple payment methods

Most companies today want to offer their customers as many paying options as possible, but small businesses might find this difficult. Most of them might not be able to bear the cost of using multiple payment platforms or they might not have employees who are adept at handling multiple modes of payment. Training them will again put a strain on the business’ limited resources. The obvious solution is to go for an integrated platform that accepts multiple modes of payment, but this can lead to another problem. Lack of integration between the company’s existing accounting software and the payment platform can lead to longer processing times and higher costs. The trick is to choose wisely.

Payment security

Businesses cannot afford to offer their customers anything but 100% secure payment channels. As a small business, you can’t risk having your customers fall prey to fraud and face glitches while using a payment channel approved by you. Your customers will naturally want nothing more to do with you. But that could be the least of your problems. The stain on your reputation might be a bigger blow, one you might not survive. So, it’s important to do thorough due diligence before choosing a payment partner – for starters, insist on end-to-end encryption and fraud management. Also make sure the payment service partner provides round-the-clock support as delays in responding to problems will again lead to payment delays and negative cash flow.

Poor understanding of payment terms

Small firms without a full-fledged finance department or inexperienced start-ups often struggle to fully understand the payment terms they have implemented, missing important points and not grasping their implications. Such a lack of understanding leads to confusion, which causes payment delays. To avoid such a situation, keep your payment terms simple to start with. Hiring an expert or consultant to help you develop an effective set of payment terms is also worth the expense, when the alternative is a cash crunch aggravated by late payments.

Types of payment terms

Rounding off the article, here’s a list of common payment terms, many of which are identified by their acronyms:


Payment in Advance (PIA) means the customer must pay you – in full or partially, as specified – before receiving the goods/services. This is called Cash in Advance (CIA) if payment is to be made in cash. The PIA and CIA payment terms are loaded in favour of the seller and may be disadvantageous to the buyer. But it is advisable to use them when working with a new customer, especially if you cannot verify their ability to pay you.


Cash on Delivery (COD) means the customer pays at the time the goods are delivered. If the customer fails to pay, the goods remain with the seller. You’ll find COD payment terms are commonly used in e-commerce.

Net 7, 10, 14, 30, 60, 90

These payment terms mean that payment is expected within seven, 10, 14, 30, 60, and 90 days of the invoice date, respectively. The 30 days payment term (Net 30) was once the standard but shorter terms are now increasingly used.

2/10 Net 30

This payment term specifies an early payment discount. It means the payment deadline is 30 days from the invoice date, but if the customer pays within 10 days, they receive a 2% discount on the total due. A 2% discount is not the norm and this format can be used with different numbers.


Another type of prepayment, Cash with Order (CWO) specifies payment at the time of ordering. Payment may be in full or partial.

Immediate Payment

This literally means that payment is due on the date of the invoice. However, in actual practice, the customer usually pays on the day they receive the invoice, which is why this payment term is also called  Due upon Receipt.


End of Month (EOM) means payment is due at the end of the month of the invoice date.

15 MFI, 21 MFI

These payment terms specify that payment is due on the 15th or 21st of the month following the invoice date.

50% Upfront

As the name suggests, half of the invoice amount must be paid upfront before work begins. This payment term is usually associated with big projects with a long completion period.

1MD, 2MD

The customer makes monthly payments for a full month’s supply (1MD) or for two months’ supply (2MD).


Cash before Shipment (CBS) requires the customer to make a downpayment before the goods are shipped. This payment term is used by businesses that make and sell custom products such as furniture and works of art.


Cash Next Delivery (CND) is used for recurring orders and means that payment for the current order must be fulfilled before the next order is delivered.

Letter of Credit

Commonly used in import-export transactions, a Letter of Credit (LC) is a guarantee from a bank that the buyer’s payment will be received in time and for the stipulated amount. If the buyer is unable to make the payment for some reason, the bank will cover the payment in their place. An LC payment term is considered one of the safest but is also expensive as the bank charges a fee for its service.

Stage Payment

Under this payment term, the buyer pays an agreed upon sum at specific intervals over a period of time. 

Cash Against Documents (CAD)

This is another payment term that is commonly used in international trade and has a bank acting as an intermediary between you and your customer. The bank is appointed by the customer. After shipping the goods, you send the shipping documents (bill of lading, air waybill, invoice, packing list, etc) to the bank. The bank verifies the documents against the purchase order and contract and if satisfied, informs the customer, who transfers the money to the bank. The bank then forwards the payment to you while sending the shipping documents to your customer.


You can use this payment term when you are expecting payment from a customer but you also owe money to that customer. Under this payment term, the party that owes the larger sum pays the difference between the two amounts due.

Get paid on time while maintaining a bird’s eye view of your cash flow with Aspire Receivable Management.

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About the author
Marissa Saini
is a seasoned writer and an avid trendspotter across business finance, personal finance, travel and lifestyle industries. With writing history at SingSaver, INK, and ohmyhome, Marissa leverages her broad range of experiences to simplify finance and make readers financially savvy.
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