Importance of Payment Terms
Setting clear payment terms helps ensure your small business will receive the money needed to satisfy its own expenses.
An even more important benefit, however, is that payment terms can be used to help businesses receive payments on a predictable schedule, thus facilitating everything from budgeting, to paying salaries and more. Without that schedule, your clients may choose to pay invoices on their own schedules, which can give your business a serious cash-flow problem that prevents it from purchasing the things it needs to continue to operate. Additionally, businesses that don’t set clear payment terms have no resource for collecting late fees.
It’s important to remember that choosing and defining payment terms doesn’t mean you have to anger your current clients. On the contrary, payment terms can offer clients additional options for settling their debts, such as discount programs and lines of credit. In some cases, offering better payment options may even draw business to you from your competitors.
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Below are some of the most popular payment terms featured on business invoices, along with their benefits and drawbacks.