An invoice is a transactional record for services or products a business provides to its customers, with the corresponding amount due. This source document illustrates the cost and terms of a sale by using what is known as payment terms. These terms outline the process of payment that a buyer must follow to pay the seller accordingly.
So what exactly should you include in your payment terms for your business’s invoices?
What to Include In your Invoice Payment Terms
The payment terms on your invoices influence how quickly you will get paid, so it is important to decide exactly what you want to include, and how you state your terms of payment. These need to be clearly and concisely stated so your customers know exactly what they need to do, and when they need to do it by.
For further information on creating invoices, check out QuickBooks invoice templates for referencing. Within your small business or self-employed invoice, you will want to include the following information below.
Net 30 is the most common type of payment term that is included on an invoice. Net 30 means a customer must pay the total invoice amount by the date 30 days from when the invoice is sent. Sometimes businesses will offer customers a net 10, 20, or 60 day payment period depending on when they want to be paid by. It is more common to use a shorter net date, as it guarantees a quicker payment process for your business.
Payment terms like this help make it crystal clear when an invoice should be paid and helps with any confusion or late payments. Some businesses give customers a grace period of a few days after the due date before escalating the situation. A grace period is the amount of time you give to customers to pay without them having to incur any late fees or interest. Again, this period is dependent on your inclination and what you think is best for your company.
Invoice Due Date
The invoice due date is another term used for the date the payment is due. On your invoices’ payment terms, you can either state the due date or net date of the payment to ensure the customer sends you the exact amount owed to you at the right time.
Which one you choose is up to you. Some customers prefer to see the due date, as it clearly states the payment date. A net date, on the other hand, will show you how many days you have to pay, but the customer must calculate the exact date from the point when the invoice is received.
Terms of Sale (TOS)
Terms of Sale are the payment terms that have been agreed upon by the buyer and seller. Generally, this is the expectations between the buyer and the seller. These sale terms should typically include:
- Cost per item or service
- Payment Method
- Invoice due date or net date
This tax is imposed on services and goods when a customer purchases a good or service from a business within Canada.There are several types of sales taxes applied in the country, depending on the area of supply:
Federal Goods and Services Tax (GST) is collected on all taxable goods and services in every province and territory.
- Harmonized Sales Tax (HST) is collected on goods and services supplied in the provinces of Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.
- Quebec Sales Tax (QST) is collected only in the province of Quebec.
- Provincial Sales Tax (PST) or retail sales tax is levied in the provinces of British Columbia, Saskatchewan, and Manitoba.
Learn more about the applicable sales taxes in your province with the Canada Revenue Agency sales tax guide.
An invoice currency is the currency that the business uses to charge its customers. A buyer agrees to the currency once they place an order or sign a purchase order agreement. The invoice currency and amount are fixed at the time a business issues the invoice, whether it’s before, during, or after shipping goods or providing services.
Domestic transactions (sales within Canada for example) normally include invoice currencies. However, since the currency used by the buyer and seller is the same, the invoice currency is assumed to be that currency. If your company does business within other countries, QuickBooks Online offers multi-currency support to automatically adjust for and reflect various currencies and exchange rates.
Recurring Payments if Ongoing
Recurring payment invoices are for ongoing services, and are typically the same for each month. An example of this might be a membership or subscription based service, as their services are provided every month and are the same amount each month. Recurring invoices help to guarantee your business is generating and keeping track of cash flow each month.
Example of Invoice Payment Terms
Some abbreviations that might be included on the terms of payment include:
- PIA: Payment in advance
- CIA: Cash in advance
- EOM: End of month
- COD: Cash on delivery
- CBS: Cash before shipment
- CWO: Cash with order
- #MFI: Payment due on the date of the Month Following the Invoice date
How to Write Payment Terms
Here are some tips you can take on board when writing your payment terms for your small business or self-employed services.
Discuss payment terms with your clients before the job starts
Before you start working with a client or sell them any products, both of you should agree on payment terms. When you are creating the terms, make sure that you both understand them and that they are not ambiguous or filled with jargon. They should be easy-to-understand for the customer to guarantee that both parties are satisfied with the transaction.
How Long Should I Give Someone to Pay an Invoice?
Invoices typically provide a date range up to a net 30 payment. The payment due date you provide your customer will depend on when you want to get paid, your current cash flow status, and how much you trust your customers to pay on time. Taking these things into account generally means using payment terms that outline a net date of up to thirty days after an invoice has been received.
Use Incentives or Penalties to Ensure Quicker Payments
For the most part if you don’t offer any type of incentive to pay on time or a penalty for late payments, clients will not have any incentive to pay you on time. When it comes to penalties for late payments, you will have to include a late fee on invoices if they are paid after the due date, and grace period if you offer one. The penalty fee and interest incurred must be included in the payment terms in order to be binding.
On the other hand, one of the biggest incentives when it comes to payments is to offer clients a discount if they pay within a shorter period of time than what was originally discussed on the invoice. For example, some businesses offer a 2% reduction in the total cost of the invoice to spur customers to pay in the first week of the net date. To discover if incentives are advantageous for your business you will need to consider your net date and the yearly costs of discounts.
Consider Software that Tracks Payments
Cloud-based software such as QuickBooks offers businesses the ability to track customer invoice statuses, and sends your clients email reminders if they miss their payments, so you don’t have to. Once the customer has made their payments, it will automatically show up on your accounting records in the corresponding client folder.
Tracking payments with QuickBooks is just one of the quality features of this software that helps businesses to run smoothly and guarantees quick and orderly payments.
Always Keep a Copy for Yourself
Invoices are a written or electronic documentation of the business to the consumer. Each invoice is an invaluable piece of information for any business and it is important for businesses to keep a copy of each invoice for record keeping purposes. Other reasons to keep track of all your invoices:
- Tax Purposes
Don’t Complicate Things, Keep Your Terms Straightforward
When it comes to the language on the invoice, sometimes a customer might not know what the term “net 30” means. Instead you can change it around to “30 days” so that there isn’t any confusion. You could also make things clear and straightforward by indicating the exact invoice due date of when the payment must be made.
Keep your terms simple and straightforward. If you use double negatives or industry jargon within the invoice, you could make your terms unnecessarily convoluted, confusing the customer and inadvertently causing payment delays.
While it might take a little extra time to create the invoice, you should include a detailed description of what work you performed. You should also consider itemizing your invoice so they specify what is being charged in the invoice. This will help make sure that the customer understands what was done and how much they were charged for for your services rendered.
Don’t Be Afraid to Ask Again for Your Payment
Sometimes the time gets away from your customers, and they forget to pay you what is owed on time. If this happens, it pays to be polite. Gently remind your clients with an email or phone call of their owed accounts. Payment delays can happen for any number of reasons, so it’s important to be understanding but firm with your clients.
Be Polite and Offer Quick Payment Methods
No matter what payment terms you opt to use for your small business invoicing, the right software can make creating and sending invoices easy. You can also create customized electronic invoice templates for each client.
Customization may include adding fields for purchase order numbers, customized product descriptions, and tax rates. Remember to add phrases like “Thank you for your business” and “Please contact me if you have any questions or concerns” to the invoices, which shows your clients how much you care about their business. Start accepting payments online and invoicing today with QuickBooks.