Invoice Payment Terms: A Guide for Service Business Owners

What are invoice payment terms?

Invoice payment terms tell clients when and how to pay you. They also outline what happens if a payment is late. 

Your invoices should include the following elements to ensure your payment terms are clear and enforceable: 

• The invoice number
• The invoice date
• The total payment due
• The payment deadline
• Accepted payment methods
• Payment instructions

Invoice payment terms can also include information about early payment discounts and late payment fees.

Using payment terms in your invoices ensures that clients understand their responsibilities when it comes to compensating you for the services you provide.

READ MORE: How to write an invoice

With invoicing software like Jobber, you can create professional invoices that include the payment terms that are relevant to your business. Here’s an example of what that looks like: 

Common invoice payment term examples

The two most important invoice payment terms to have on your invoices are related to payment due dates and your accepted payment methods. These are what ensure clients know when and how to pay you and prevent miscommunications and confusion. 

1. Payment due date terms

The due dates you choose for your invoices impact your billing cycle and cash flow, and you have a variety of options when it comes to choosing the terms that work best for you. Standard payment terms for billing cycles and due dates include: 

PIA (Payment in Advance)/CIA (Cash in Advance)

PIA and CIA refer to invoices that require payment of the total invoice amount before a job begins.

Many home service providers request payment in advance so that they can avoid issues like late and nonpayments in the future. They’re also helpful during jobs that have unexpected delays that halt or suspend the work since you won’t be left waiting for payment on a job that relies on a client to move forward.

Net 7, 14, 30, 60, 90

Net payments refer to the number of days a client has to pay an invoice after it has been received.

Net 7 means a week later, net 14 means two weeks, and net 30 means a month. After the date passes, interest charges and late fees may be applicable.

Most home service providers don’t use longer payment terms, like net 60 or net 90 unless they service large commercial clients.

EOM (End of Month)

EOM payments are due at the end of the month in which they were sent.

For example, regardless of whether an invoice was sent on November 2nd or November 21st, it would be due at the end of the month using an EOM payment term. EOM payments work well for both one-off jobs and recurring payments. 

COD (Cash on Delivery)

COD invoices mean that payment is due as soon as a job has been completed.

For example, if you are a landscaper and you use COD invoicing, a client would owe you for mowing their lawn immediately after you finished the job.

Stage Payments or Progressive Payments

Stage payments are made at predetermined stages during large projects. They need to be agreed on by you and your client in advance and are typically used for big or ongoing projects.

For example, if you estimate a project will take three months to complete, you could request payment each month for the work that has been completed.

Or, you could bill after specific project milestones.

Percentage Upfront

Percentage upfront means that you require a deposit before any work begins. They’re usually around 50%, but some service providers ask for more or less depending on factors like the value of the job and cost of materials.

MFI (Month Following Invoice)

MFI means that payment is due a month after the invoice is received. For example, if you sent an invoice on May 3rd, it would be due on June 3rd.

Contra

A contra payment term is specific to jobs that require materials or supplies. The client is expected to pay for the cost of these supplies upfront, either through you or directly to the supplier. This is common when the supplies are particularly expensive or the client can get a better deal by making the purchase themselves.

Once the supplies have been purchased, the invoice is reduced by the cost of materials.

WATCH: The best way to prevent late payments

Why are payment terms important for your business?

Payment terms provide many different benefits to your accounts receivable process. From helping you to get paid on time, to backing you up in a dispute, they outline and guide how payments are handled between you and your clients.

Payment terms are important for your service business because:

1. They encourage prompt payments

The more clear you make your payment terms, the harder it is for clients to misunderstand them. By including straightforward and consistent information about payments in each invoice, clients are more likely to follow your instructions instead of setting your invoice on the backburner.

For example, it’s hard for a client to argue that they didn’t know payment was due at the end of the month if it was clearly stated in your invoice’s payment terms.

But, without payment terms, a client won’t know when or how to pay, let alone whether they’ll face penalties if they miss the payment date.

2. They keep money in your pocket

By using the right payment terms for your service business, you’re more likely to stay cash-flow positive. When clients pay on time and in full, it ensures that you have the funds to pay employees, maintain equipment, and cover your own bills.

This keeps you from having to dip into your personal bank account to stay out of the red.

Payment terms help to make your income more predictable, giving you a chance to plan ahead, cover your expenses, and rely on a consistent payment schedule.

READ MORE: How to prevent overdue payments

3. They clarify expectations

The invoice terms you include should be clear enough that they don’t leave any room for confusion or misinterpretation. They need to give a client all the information they need to make a payment to you on time without having to ask any questions.

They’re also a good way to clarify your expectations about the client’s responsibilities.

For example, if you expect payment upfront, including details in your payment terms helps you make sure that your clients know they have to pay you before any work can begin.

If you don’t make that clear beforehand, your clients won’t understand what’s holding up the work and may lose interest in your services altogether.

4. They make accounting easier

When you have clear payment terms that outline your preferred payment methods and due dates, your invoices are much easier to track. Finding out whether a client is overdue is as simple as looking at the due date on their invoice.

This saves you from sending out payment reminders too early or arguing with a client about whether or not the late payment fee is valid.

READ MORE: 5 steps to improve your accounts receivable management

5. They’re part of a good papertrail

Invoices, and the terms you include in them, protect your business in the event of a dispute. Not only do they help to show a client when and how they are expected to make a payment, they’re also provide a papertrail in the unfortunate event of a legal dispute.

How to use payment terms to get paid on time

To use invoice payment terms to improve your chances of getting paid in full and on time, they need to be clear, consistent, and concise. 

You can fit a lot of information into a simple line that gives clients all the information they need. For example:

Best practices for invoice payment terms

Now that you know what invoice payment terms are and how to use them, here are some tips to help you get started:

• Choose and use consistent payment terms
• Enforce late fees and interest charges on late payments
• Send professional invoices
• Provide multiple payment methods
• Offer incentives for early payments
• Be polite and clear in your wording
• Be flexible with clients who will have trouble meeting your payment terms
• Make and send payment receipts

Originally published in September 2021. Last updated on July 31, 2024.