Payment Terms

Payment terms define when payment is due relative to the invoice date and under what conditions. The core elements are the net period (net 30, net 60), any early-payment discount (2/10 net 30 means a 2 percent discount if paid within 10 days, otherwise the full amount in 30), the trigger date convention (invoice date versus receipt of goods versus end of month), and consequences of lateness such as finance charges. Variants like EOM (due at end of month following invoice) and prox terms (due on a fixed day of the following month) are common in specific industries.

Terms are a pricing decision as much as a credit decision. Extending net 60 instead of net 30 is equivalent to a price cut whose cost equals the seller's cost of capital on the extra 30 days of receivables; a 2/10 discount taken by customers is an annualized cost to the seller of roughly 36 percent if the alternative was payment at day 30. Credit managers should own or at least co-own terms decisions, because sales teams systematically underweight the working capital cost of longer terms.

Consistency matters operationally and legally. Terms should appear on the credit application, order confirmation, and invoice, and they should match. When large customers impose their own terms through supplier portals or payment-terms extension programs, the seller should treat that as a negotiation with a quantifiable cost, not an administrative formality, and adjust price, limits, or credit insurance accordingly.