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
- We recommend setting default payment terms and making adjustments for special cases. You can use your default as the “benchmark” and make due date adjustments for particular customer segments to learn which works best.
- From any page, click the Gear Icon (
) and select Accounts and Settings (or Company Settings).
- Click the “Sales” tab on the left and then click the pencil icon (
) for “Sales form content.”
- Once you make a selection, your “preferred invoice terms” are automatically applied to all invoices going forward (not retroactively).
- Don’t forget to click “save” in the box below before clicking “done.”
Scenario 2: Set payment terms for particular invoices
- The easiest way to adjust invoice payment terms is right on the invoice form itself. This only applies changes locally to this specific invoice – you’d need to go into settings to change the default.
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?
- Payment terms are about more than getting paid – they set a tone for your business. Establish them based on what is reasonable for both you and your customers.
- We recommend adjusting your payment terms concurrently with the growth of your business. If customers aren’t paying outstanding invoices fast enough, you shorten the payment period. At the same time, don't assume they’ve skirted their responsibilities – if your payment terms offer flexibility, customers will act accordingly. Set expectations early, communicate clearly and give ample notice if you plan to make changes.
- Make your payment terms clear and easy to find on every invoice. If you commit to "Net 60” payment terms, customers have 60 days to pay you. Even if customers pay at 11:59 pm on day 59, it’s still on time. You can’t apply new payment terms retroactively, you can only set new expectations going forward.
- Provide ample notice if you ever plan to change your payment terms, especially if you decide invoices are “Due on Receipt.”
What’s Next?
- How to Customize Invoices in QuickBooks Online
- How to Review Open Invoices and Send Payment Reminders and Balance forward Statements in QuickBooks ...
- How to Send Paper Invoices in QuickBooks Online
Check your Progress
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:
- Go to the +New button.n
- Select Receive payment under Customer.
- Enter the customer's name and the amount of the invoice.
- Make sure to put a check-mark next to the Description.
- Then, Save and Close.
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:
- Go to the Gear icon.
- Select Account and Settings under Your Company.
- Click the Sales tab.
- Within the Sales form content, click the drop-down arrow and add a new term.
- Select the correct option for you and enter the number of day.
- Click Save. Then, Done.
To manage your sales form, you can check these articles:
- Learn how to personalize and add specific info to sales forms.
- Learn how to import and design custom form styles for your invoices or estimates.
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?
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.