Pros and cons of payments due upon receipt: What small business owners should know

You’ve done the work or delivered the products, and now you want the money you’re owed.

But, unfortunately, late payment (or even worse, non-payment) is a common struggle for business owners. Too often, clients take days or even weeks to pay an invoice, which puts you in a tight spot if you’re counting on that money to keep your business running.

One way to prevent that lag time is to use a “due upon receipt” invoicing method. By requiring payment when the invoice is received, you increase your chances of getting paid immediately while avoiding needing to chase down outstanding payments.

Are invoices due upon the receipt the right choice for you, your customers, and your business? Here’s what you need to know.

What does invoice due upon receipt mean?

A due upon receipt invoice requires that payment be issued as soon as the invoice is received. When your customer receives an invoice from you, they should get you your money as soon as possible. In most cases, payment due upon receipt means paying by the next business day at the latest.

Graphic: Invoice due upon receipt

This invoice payment term communicates to your clients that you expect to be paid as soon as your goods or services are delivered, and it’s the next-best option to getting paid upfront.

Our own survey found that the average business owner has $78,355 in outstanding receivables. That’s a lot of missing money for a business with limited cash on hand.

The good news is that, as a business owner, you have the power to set the payment terms and conditions that will benefit your business. For many entrepreneurs, having invoices due upon receipt is an effective way to not only get their money, but also some added peace of mind.

When is due upon receipt used on invoices?

Due upon receipt invoicing is typically the best fit for new clients or one-time clients who need one-off goods or products. That way, you can wrap things up as quickly as possible in one clean transaction.

When this invoicing method gets you your money as soon as possible, why shouldn’t you use it across the board? Particularly with long-standing or recurring clients, this expectation can make you seem demanding and cause friction—especially if your customers need to manage their own cash flow.

There’s no rule that you need to use the same invoicing method across your customers. You might want to consider other ways to invoice, depending on your relationship with different types of customers. It’s not always one-size-fits-all.

Pros of due upon receipt invoicing

When considering which payment terms are the right fit, there’s nothing like a good, old fashioned pros and cons list to provide some clarity. Let’s start with the good news. Due upon receipt invoicing leads to:

  • Quicker payment turnaround: The most obvious benefit is that you get your money faster. This is especially helpful for freelancers and entrepreneurs who are just starting out and need capital to reinvest in their businesses.
  • More reliable cash flow: When you can count on timely payments, you have a better idea of how much money is coming in and out of your business. That helps you avoid pitfalls, plan ahead, and prevent a last-minute scramble to get the cash you need.
  • Less wasted time: Chasing down outstanding payments takes a lot of time and mental energy. By requiring customers to pay right away, you can spend less time following up on invoices and more time on running your business.
  • Streamlined operations: You have a lot on your plate, which makes it all too easy for an invoice to get lost in the shuffle. Asking for immediate payment means you’re less likely to lose track of unpaid invoices.

Cons of due upon receipt invoicing

The advantages are undeniable, but that doesn’t mean there isn’t a flipside to consider. Particularly in the eyes of your clients and customers, there are a few disadvantages to due upon receipt invoicing. These include:

  • Increased inconvenience: Some clients, especially those that are also small businesses, might not be able to pay immediately.
  • Unsuitable projects: Projects that require a lot of revisions might not be a good fit for due upon receipt invoicing, as many clients aren’t comfortable paying until the final product is exactly how they want it.
  • More tension: Even though getting prompt payment is best for you, it can be off-putting for your clients and make you seem difficult to work with. For clients who are especially touchy, it can even decrease the likelihood of them becoming repeat customers.
  • Ultimately, you as the business owner are the one who needs to decide which invoicing method is best for your business. Weighing these pros and cons will help you make an informed decision about your payment terms.

How to word a request for immediate payment

You’ve decided that you want to use due upon receipt invoicing in your business, but now you’ve reached another hurdle: breaking the news to your clients and customers.

It can be awkward to tell them that you want your money, and you want it now. The key is to use polite but direct language that clearly spells out your payment due date and how they can conveniently issue payment.

  • Show gratitude for their business: “Thank you for your purchase of [product or service].”
  • Explain your payment expectations: “Payment must be completed within one business day of receiving the invoice.”
  • Provide clear payment instructions: “You can complete your payment by using this online payment portal.”

Remember, an invoice requiring immediate payment shouldn’t come as a surprise. Your clients should be looped in on the fact that payment is due upon receipt when your initial contract is completed.

Other invoicing terms and conditions to consider

Due upon receipt invoicing can be appealing, but it isn’t the only way to go. You could also use the following payment terms:

  • Net 7 days: Payment is due seven days after the invoice is received.
  • Net 30 days: Payment is due 30 days after the invoice is received.
  • Due end of month: Payment is due by the last day of the month.

Graphic: Other invoice payment terms

You can set your invoice payment terms to any number of days you’d like using “Net D” (“D” stands for “days”) payment terms. Maybe you and your client agree that 14 days is a reasonable amount of time to expect payment. You’d then list “Net 14 days” as your invoice payment term.

If you aren’t comfortable with requiring immediate payment but still want to get your money, you can incentivize early payment. For example, you could offer 2% off the total owed if the customer provides immediate payment—even if it isn’t technically due for two weeks.

Regardless of which route you go, make sure that the payment terms and payment due date are listed on your invoice and clearly communicated to your client. It avoids any confusion and helps you contest any payment disputes that might come up.

Tips for setting up effective invoicing

Looking for more invoicing tips to streamline this aspect of your business and get what you’re owed sooner rather than later? Here’s how to make this a breeze for both you and your customers:

  • Make sure you clearly label your invoice with a payment due date and your preferred payment method.
  • Send your invoices electronically, rather than relying on the mail.
  • Encourage clients to use instantaneous payment methods (and make it easy for them to do so). Cash and checks can draw out the time it takes you to get your money.
  • Follow up on outstanding invoices repeatedly. You want your clients to know you’re serious about the money you’re owed.
  • Include late fees in your terms and conditions. It discourages late payments and also helps you recoup a fee for the inconvenience of waiting and following up on payment.
  • Use a standardized invoice template to confirm you’re including the must-have information each time you send an invoice.

Making your expectations clear doesn’t make you demanding or difficult—it makes you organized and diligent.

Set payment terms that work for you

When you’ve done what was expected, the last thing you want to do is wait weeks for the money you’re owed—or even worse, never see it hit your bank account.

Due upon receipt invoicing is one way to instill a sense or urgency and encourage your customers to pay right away.

But, much like everything else in your business, it’s not a fit for everyone. Carefully consider the pros and cons and you’ll land on the payment terms that keep you, your clients, and your bank account happy.

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