How soon do you want to get paid after sending an invoice? How long do you want to give customers to pay their outstanding invoices?
Invoice payment terms are an agreement between you and your customers regarding when invoice payments are due. “Net” refers to the number of days before the expected payment. Adjust your payment terms to fit the pace of your business, industry, and your relationship with your customers. Even simple things, like net payment terms, set expectations and tone for all parties involved.
Why should I adjust my Invoice Payment Terms?
As the business owner, it’s imperative to strike a balance – you want to get paid in a timely manner, but you also want to establish reasonable payment terms for customers. Consider the long and short game. Getting paid now means dollars in your pocket. On the other hand, flexibility always pays dividends in customer loyalty.
If you have a high volume of customers with relatively low-cost invoices, consider shorter payment terms. However, if you frequently send high-cost invoices or know your customers generally have difficulty making payments before the end of the month, go with “Net 45” (or higher) to provide them with an ample opportunity to settle their outstanding balances.
Additionally, think about the payment methods you want available. If you don’t know which method your customers prefer, ask them. Again, don’t take the economics at face value. If they prefer the convenience of credit cards, the upfront service fees your business absorbs can be justified in the name of satisfied customers. At the same time, you may want to only accept checks or ACH payments to avoid fees entirely. Communicate with your customers so they understand these limitations.
Get started adjusting Invoice Payment Terms
There are a few ways to set Invoice Payment Terms, depending on which segment of customers you want them applied to.
Scenario 1: Set default payment terms for all customer invoices
Scenario 2: Set payment terms for particular invoices
Show me why I should adjust my Invoice payment terms
I initially set my default payment terms to “Net 30.” Last month, I decided to switch to “Net 15” so I could receive payments sooner. Before making the change, I sent all of my clients an email notify them of the change well in advance. I went to the Sales Tab and then the Customers Sub-Tab, checked the box next to the customers I want to contact, and then selected "email" from the “Batch Action” button.
A month later, I noticed the percentage of customers who paid on time went down. So, I called a few of my favorite customers and asked why they were having trouble making payments. Turns out many of them found it inconvenient to send a check within 15 days.
So, I set my payment terms to a customized “Net 35” and enabled ACH Bank Transfers from the Custom Form Styles module. To further incentivize early payments, I looked into the early invoice payment discount feature (Gear Icon > Account and Settings > Sales > Sales form content > “+Add New”).
I considered offering a 2% discount for invoices paid within 10 days and 1% if paid within 15. I even created messaging for the memo section of my invoice emails clearly stating the timetable started the moment I sent the invoice.
However, after reading more about the discount feature, I realized the process is manual and isn’t automatically applied to qualifying invoices. In the future when I am more confident with QuickBooks, I will take the time to calculate discounts balances, but for now, I will leave the feature alone.
Any other tips I should keep in mind to be successful?
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