Updated July 20, 2018 04:48 PM - edited August 28, 2018 10:16 AM
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?
What’s Next?
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I am trying to set up payment terms so that invoices are due on the 15th of the month following the month they are incurred. Invoices are generated throughout the month, the statement is sent out the following 1st of the month and it is due on the 15th. The problem I am having is that with a setting of Net 15, invoices generated prior to the 15th of the month are showing up as past due on the statement. I've been trying to create a new term of "due by 15th of next month" but need some guidance on the settings.
Example: Invoice created November 8, 2020. Statement generated December 1, 2020, with a due date of December 15, 2020, shows the invoice as already past due.
Hello there, Affordable56001.
If the invoices already beyond the due dates you set up, they'll show as past due invoices. You can manually record the payments against those invoices (make sure these have been paid by your customers). Here's how:
On the other hand, if there are already associated payments and still showing past due invoices, you can delete and create them. To guide you further in setting a new term for your sale transaction, you can follow the steps below:
To manage your sales form, you can check these articles:
Please let me know if you have other questions. Take care always.
I'm having the same problem as @Affordable56001. Kindly requesting an update to this problem.
@SarahannC , you haven't addressed the problem please. Does QBO support these payment terms and update the due date accordingly?
Hi there, 317514.
Let me help ensure the payment term will update on your invoices.
You need to manually open and edit the invoice. Then, re-select again the term since you're updated the due date. If not, it won't reflect on your old invoices or will show them as past dues.
Here's how:
If customers aren't able to pay on time, QuickBooks helps you apply late fees. Check out this article to learn how to turn on the feature: How to set up and add late fees to overdue invoices.
Stay in touch with me if you have additional questions about payment terms. Just leave a comment below, and I'll get back to you.
@MaryLandT many thanks for your answer here but you still have not addressed the question.
Does QuickBooks Online support the Terms for "20th Following Month" and have the due date to be auotamatically updated correctly.
Welcome back, @317514.
Yes, QuickBooks Online (QBO) allows you to set a "20th Following Month" term and update the due date automatically. Let me guide you on how to set it up and how it works.
When you set a "20th Following Month" term, you'll want to enter 20 days in the Due the next month if issued within field as well. This way, the due date will automatically fall on the 20th of the following month. I'll attach a screenshot below for your visual reference.
Please also know that if you only enter the specific day in the Due by certain day of the month field, the term will only take effect when the invoice date is beyond the 20th of the month.
I'm adding this article to learn more about adjusting invoice terms: How to Adjust Invoice Payment Terms in QuickBooks Online.
Should you need further assistance managing terms in QuickBooks Online, I'm available here to help any time! Have a good one, @317514.
Solved!
Many thanks for your support.