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2018-08-08 01:13:10Finance and Accounting: InvoicingEnglishYour invoices need to have certain details in order to be GST complaint. Here are some tips that will help you create invoice payment terms. Net 30: Understand Invoice Payment Terms

2/10 Net 30: Understand Invoice Payment Terms

11 min read

2/10 Net 30

Like Net 30 invoice terms, 2/10 Net 30 requires buyers to pay within no more than 30 days of receipt. However, this payment type offers a discount of 2% for clients who submit payment within 10 days. Buyers who have sufficient cash flow may opt to pay invoices early in order to reduce costs over the long term.

Net 30

One of the most common payment terms, Net 30 days (or “N/30″), means that a buyer must settle his or her account within 30 days of the date listed on the invoice. It’s important to remember that 30 days is not equivalent to one month. If your invoice is dated March 9, clients are responsible for submitting payment on or before the 8th of April.

Businesses may also set invoice terms to Net 60 or even Net 90, depending on their preferences and needs.

The most commonly used trade credit under cash discount is 2/10 net 30. This means the buyer can make the payment within 10 days and take the benefit of 2% cash discount. Or else, make the payment as usual in full within 30 days.


Kapoor Pvt Ltd offers 2/10 net 30 trade credit to one of its customers Pixel Designs. The amount of the invoice is Rs 30,000. As per 2/10 net 30, if Pixel Designs makes the payment within 10 days, the company is required to pay Rs 29,400. If Pixel Designs does not take the cash discount benefit, it will pay Rs 30,000 in full within 30 days.
As per a recent survey, over the past year, SMEs in India have shown significant improvement in the payment timings in B2B customers. There is a 20% increase in the invoices that are paid on time. Given this improvement, the unpaid invoices in India for SMEs now account for 37.6% of the total value of B2B invoices. However, the unpaid invoices for micro enterprises are an average 43.4% and 36.2% in case of large enterprises.

Likewise, the large enterprises showed the highest portion of unpaid B2B invoices. The figure stood at 2.8% as against 2.6% for both SMEs and micro-enterprises. Thus, regardless of the type of business or its size, every business entity needs continuous cash flows to run its business activities uninterruptedly.

A business would not be able to pay for its day-to-day expenses such as raw material, wages etc if it does not receive payment from its customers. Simply receiving payment is not sufficient. It is important that a business owner has a proper payment system set for every customer to receive timely payments from them.

This is where the need for invoicing and proper invoice payment terms comes into the picture.

What are Invoice Payment Terms?

The invoice payment terms form part of terms and conditions of sale. Terms and conditions of sale are nothing but a settlement stating the contractual conditions of transactions between buyers and sellers. Such transactions relate to the sale of goods or services. Needless to say, these are the set of rules that dictate every sales transaction taking place between the buyers and sellers.

Invoice payment terms being part of such terms and conditions state details like:

  • If the credit is to be allowed to a particular buyer?
  • The time for which the credit is to be given to the buyer
  • Discounts, if any, to be given

Thus, the invoice payment terms set for the sales transactions have a significant impact on the entity’s business operations. For instance, extending time to a customer for making payment means investment of operating funds by the seller towards the buyer. Furthermore, extending credit to the customer also means providing goods and services to him before receiving payment towards it.

Now, this further leads to increasing the seller’s risk of loss. Such a loss may be on account of non-payment by the buyer in case he goes bankrupt. Or there could be a possibility of a dispute between the buyer and seller leading to non-payment by the buyer.

Therefore, while setting the credit terms as a part of the invoice payment terms, it is important on the part of the seller to consider his:

  • Ability to finance the receivables
  • Vulnerability to losses on account of disputes or buyer’s insolvency

So, let’s have a look at the commonly used invoice payment terms by businesses across sectors.

Invoice Payment Terms

1.Terms of Sale

Terms of Sale are basically the conditions agreed between the buyer and the seller. These terms proclaim the underlying commitments, risks and the costs both on the part of the buyer and the seller with regards to the goods and services involved.

Further, few of these terms form an important part of the invoice prepared by the seller for the sale of goods or services undertaken. These include the:

  • Price of goods or services
  • Quantity
  • Time of delivery
  • Method of payment
  • Due date for payment

It is important that both buyer and seller come on a common page when it comes to the terms of sale. This is to avoid any misunderstanding over the context of terms of sale at a later date. Confusion with regards to such terms and conditions may possibly result in loss to the seller.

Further, when it comes to international trade, the terms of trade become all the more important. This is because it involves details such as the shipping date, party responsible for payment of international taxes and duties etc.


Ink Press, a digital marketing agency entered into a contract with Dewberrys, an online clothing store. The agency agreed to enter into a sales contract with Dewberrys. The “Terms of Sale” clause governing such an agreement were as follows:

  • Ink Press shall provide Dewberrys with the following services every month:
    • Setting up social media platforms such as Facebook, Twitter, etc
    • Creating content, engagement and ongoing management of these platforms
    • Monitor social media conversations and responding to them
  • Dewberrys agrees to pay Ink Press retainer fee of Rs 1,00,000 per month. The amount is payable at the beginning of the month on receipt of invoice from the agency.
  • The monthly retainer fees would be paid electronically via RTGS.

2. Payment in Advance

This payment term requires the buyer to make payment before the actual delivery of goods and services. The balance amount of the payment is thus made once the goods or services are delivered to the buyer. Thus, it is common for the sellers to ask for advance payment for the goods or services to be sold by them. This helps them to cover the risk of non-payment by the buyer at a future date.

Demanding advance payment also becomes necessary in cases where buyers do not have a sound credibility. Likewise, a seller may also need advance payment to pay for certain expenses which he might have to otherwise incur on his own in order to provide underlying goods or services.


Pixel Pvt Ltd is a web development company that takes projects for website development. It usually works on a 30% advance payment with its customers. This 30% advance payment helps Pixel Pvt Ltd to initiate the project thus undertaken.

3. Cash On Delivery

Cash On Delivery (COD) means the payment for goods or services is made at the time of delivery of such goods or services. This means the buyer makes the payment for the goods or services once he receives such goods or services. The form of payment may vary as per the terms and conditions as agreed in the sales agreement. Cash on Delivery is also known as cash on receipt or Collect on Delivery.

The various forms of payment could include cash, cheque, electronic transfer, transfer via e-wallet etc at the time of delivery. Such a payment term allows the seller to collect the payment faster as compared to other payment terms. This helps in providing the necessary amount needed by the business entity to meet its working cycle needs.

Further, COD gives the customer the advantage of additional time to make the payment until the date of delivery of goods or services. But, COD also involves the risk of customers not planning for the payment appropriately. In such cases, the seller would need to call for the goods and would have to pay for the requisite shipping charges. This certainly impacts the profit earned by the seller.

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Dewberrys, the online clothing store, offers its customers the option to pay cash on delivery with other payment terms. Thus, Dewberrys being a new online clothing brand is able to get the benefit of COD as it enhances the consumer confidence. Further, it is able to give credit period to its customers until the delivery of goods purchased by them.

4. Net Terms

Small businesses often face the challenge of insufficient cash flows. Cash flow problems thus restrict the business owners from purchasing raw materials, inventory and supplies for their business. Hence, such cash strapped businesses are not able to grow the sale of their business operations.

To avoid such challenges, the sellers who engage in selling contracts with small business owners offer them with financing options such as trade credit or net terms. Net terms means that the complete amount is due for payment after the invoice date. As per the commonly used net terms by the business owners, the net payment becomes due in 7, 10, 30, 60 or 90 days from the invoice date.

Net terms help the small business buyers to gain extra time in making payments to their vendors. In other words, the buyers get the requisite raw material and supplies needed for the business immediately but are required to pay for the same at a future date. Such a practice helps both buyers and sellers in various ways.

Benefits to Sellers

Net terms offer following advantages to the sellers:

  • Increased sales
  • Competitive edge over other players in the industry
  • Increased customer loyalty

Benefits to Buyers

Net terms offer following advantages to the sellers:

  • Increased credit period
  • Good relations with the vendor

There can be certain issues as far as extending such trade credit to the buyer is concerned. There can be a possibility that buyers go bankrupt and are unable to pay the requisite money.


Ivy Trade issued an invoice dated July 31, 2019 under the payment terms net 60. Under such a payment term, the buyer is expected to make the payment against such an invoice on or before September 29, 2019.

5. Cash Discount

Cash discount is a kind of deduction that the seller offers to the buyers in order to encourage them to pay within a certain time period.

Say, the amount becomes due for payment at a certain future date as per the sales agreement. The seller gives the option to the buyer to make the payment before a specified future date and offers him some percentage of cash discount for the same.

6. Line of Credit

Line of Credit Term provides buyer the credit for the goods and services purchased for the business. Then, buyers are required to repay the balance either on a monthly or a quarterly basis. Such a payment term involves risk as there are chances that the buyer may go bankrupt. These payment terms are common across larger companies.

7. Subscriptions and Retainers

Subscriptions and Retainers require buyers to pay seller on a regular basis. The payment could be made monthly or annually. Examples could include a content agency hired on a retainer basis, hosting services etc.

8. Milestone Payments

Under milestone payment terms, large projects are divided into various phases known as milestones. The buyer makes the payment to the seller on the completion of the milestone. Such projects are either based on time or completion of a specific milestone.

9. Other Payment Terms

End of Month (EOM)

Under End of Month payment term, the credit period starts from the first day of the following month instead of the month of the invoice date. This can be explained through an example.

Graffiti Art offered a payment term to its customer Kapoor Company under the terms 2/10 Net 20 EOM. The product was shipped by Graffiti Art on July 15 as per these credit terms. As per this case, Kapoor Co. can take the cash discount anytime through August 10 or can pay the net amount on August 30.

21 Month Following Invoice Date

As per this credit term, the buyer is required to pay on 21st of the month following the invoice date.

Thus, these are the few of the important invoice payment terms that the buyer and the seller agree to before starting of a contract. Thus, to make it easy for you to understand, here is an infographic detailing 9 best practices for creating invoice payment terms.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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