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Running a business

Pros and cons of due upon receipt

By QuickBooks Australia

Published on August 21, 2024

It is understandable that you want to receive payment as soon as possible for the goods or services you’re providing, especially if you’ve been burnt before. After all, the purpose of running a business is to turn a profit by keeping money coming in.

However, one of the biggest challenges business owners face is dealing with late payments or sometimes even non-payment. Too often, clients can take days or even weeks to pay, which can put you in a compromising position if you’re strapped for cash.

One way to reduce this risk is by using the “due upon receipt” invoicing method. This method requires payment when the invoice is received, helping ensure you get paid immediately and avoid the hassle of chasing up outstanding payments. Use this guide to learn more about the pros and cons of invoices due upon receipt.

What does “due upon receipt” mean?
When to use due upon receipt invoicing?
Pros of due upon receipt invoicing
Cons of due upon receipt invoicing
Other invoicing terms and conditions to consider
Tips for setting up effective invoicing
What to include on an invoice template

What does “due upon receipt” mean?

Due upon receipt invoicing: when an invoice is due upon receipt, it means that payment must be rendered as soon as the invoice is received. Usually, payment due upon receipt means paying by the next business day at the latest. The purpose of this invoice payment term is to communicate to clients that you expect to be paid as soon as your goods or services are delivered. It is the next-best option to getting paid up front.

Alt text: Graphic shows abstract invoice illustration, accompanied by the text “Invoice due upon receipt: Payment must be rendered as soon as the invoice is received.”

As a business owner, you have the authority to set the terms and conditions for payments. Whether you’re a freelancer or a sole trader, setting invoice payment terms should be done in a way that best serves your business operations. For many small business owners, having invoices due upon receipt is the best way to ensure they receive payment in a timely manner.

When to use due upon receipt invoicing?

In general, due upon receipt invoicing is reserved for new clients or clients who need one-off projects. That way, you can wrap things up as quickly as possible in one clean transaction.

It might seem obvious that this is a good way to get your money as soon as possible and solve all your invoice problems. However, having invoices due upon receipt isn’t always recommended. For one thing, it can make you seem demanding and may cause friction with clients. You may want to consider other ways to handle invoices, depending on your relationship with different types of customers.

If you are considering switching to the due upon receipt method, you should first review the pros and cons.

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Pros of due upon receipt invoicing

There are several advantages to using the due upon receipt payment term on your invoices, including:

Quicker payment turnaround. If you have limited financial resources available, which can be common for freelancers and small businesses alike, quick payments are important. This is especially true if you need that capital to reinvest and start on your next project.
More reliable cash flow. Many businesses struggle with cash flow, which can have an impact on overall financial health. By relying on timely payments, you can avoid common financial pitfalls and plan ahead.
Less time wasted chasing up outstanding invoices. You already have enough things to worry about when trying to make your business a success. Repeatedly following up on invoices shouldn’t be one of them.
Reduced risk of forgetting about outstanding invoices. With all the responsibilities on your plate, it can be easy to lose track of unpaid invoices.

Due upon receipt invoicing can help make running your business a smoother process. However, it might not be as advantageous for your clients.

Cons of due upon receipt invoicing

There are also notable disadvantages to consider, including:

It can be inconvenient for clients. Some clients, especially those who are fellow small businesses, may have difficulty paying immediately.
It may not be ideal for projects that require revisions. Clients may not be comfortable paying until the final product is exactly how they want it.
It can be off-putting. Having all invoices due upon receipt could be a turn-off for clients and make you seem difficult to work with. For especially touchy clients, it might even decrease the likelihood of repeat business.

Only you can decide which invoice payment method is best for your business. Keep both the pros and cons of due upon receipt invoicing in mind when deciding payment terms for clients.

How to word a request for immediate payment

To maintain great relationships with clients, make sure to word your request for immediate payment appropriately. Use polite but direct language that clearly stipulates the payment due date and payment instructions.

Use the following tenets to guide you as you write a request for immediate payment:

Show gratitude for their patronage: “Thank you for your purchase of [X].”
Explain your payment expectations: “Payment must be completed within one business day of receiving the invoice.”
Provide clear payment instructions: “Complete payment by using our online payment portal.”

Remember: an invoice requiring immediate payment should not come as a surprise. Clients should understand that payment is due upon receipt when your contract is completed.

Alternative invoicing terms and conditions to consider

Instead of setting your default invoicing payment term to due upon receipt, you could also use the following terms:

Net 7 days: payment is due within 7 days of receipt.
Net 30 days: payment due with 30 days of receipt.
Due end of month: payment is due by the last day of the month.

You can set your invoice receipt payment term to any number of days you’d like using “Net D” payment terms. Let’s say 14 days might be a comfortable compromise for you. You can then use “Net 14 days” as your invoice payment term. You can also offer incentives for early payment if you choose to use one of these invoicing terms instead. For example, you could offer 2% off the total owed if customers provide immediate payment.

Graphic shows abstract invoice, with the text “Other invoice payment terms: Net 7 days, Net 30 days, Due end of month”

Whichever payment terms you choose to set, make sure the due date is clearly communicated to the client. This makes it more likely that you’ll receive payment in a timely manner. Plus, it helps you contest any disputes that may arise over past-due payments or non-payment.

Tips for setting up effective invoicing

Always make sure you have the invoice date clearly labelled and your preferred payment method specified.
No matter which terms and conditions you decide to set for invoice payment, ensure that you make your expectations clear.
Standardise payment terms across clients to make it easier to keep track of and automate invoices.
Send invoices electronically. If you’re still sending invoices by mail, you are doing yourself and your business a disservice.
Use accounting software like QuickBooks that allows you to automate invoicing and payments. This will help streamline invoice receipt and payment turnaround. Plus, you can focus on other important tasks instead of manually generating invoices for every project or order.
Encourage clients to use instantaneous online payment methods. Digital payments are the way to go because most modern online payment systems allow you to pay with your bank account or credit card. A good example of this is PayPal. Having clients who pay with cheque or cash could draw out the time it takes to receive your money.
Follow up on outstanding invoices repeatedly. You want clients to know you’re serious about the money you’re owed.
Include late fees in your terms and conditions. That way, you can recoup a fee for the inconvenience of having to wait for your payment. This will also help discourage clients from paying late.
Use a standardised invoice template.

It is also important to keep in mind that clients you’re working with may have payment terms already established in their contracts. This is one of the reasons it is so important to understand contract terms before agreeing. If the client has payment terms in the contract, make sure the invoice you send matches. If those payment terms aren’t ideal for you, you could also attempt to negotiate.

Set terms of payment that work for you

If you’re having trouble collecting payments from your clients, changing your terms of payment and having invoices due upon receipt may be beneficial. As with any other business decision, weigh the pros and cons of using due upon receipt payment terms for some or all of your clients. Having a plan for how to approach invoicing can significantly streamline your workflow and reduce outstanding payments. Use QuickBooks to set up and automate invoices and payments so you can focus more on critical business activities that will help you grow.

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Pros and cons of due upon receipt

What does “due upon receipt” mean?

When to use due upon receipt invoicing?

Grow Your Business with QuickBooks

Pros of due upon receipt invoicing

Cons of due upon receipt invoicing

How to word a request for immediate payment

Alternative invoicing terms and conditions to consider

Tips for setting up effective invoicing

Set terms of payment that work for you

Related Articles

Looking for something else?

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