Invoice & Payment Terms: Definitions and examples for 2025

Larger organizations typically use this type of customer financing, as normal balance opposed to small businesses. Incomplete work shall be considered to be the supplies and services required by this contract, for which delivery and invoicing by the Contractor and acceptance by the Government are incomplete. To maximize the effectiveness of early payment discounts, businesses should communicate the terms clearly to customers and ensure that invoices reflect the discount options available. Moreover, payment terms influence customer relationships and trust levels.

Advance payment

Firstly, you should inform your customers of how they can make their payment, and information about any penalties should they fail to make a timely payment. Let customers know which payment methods they can use, as well as the currencies that you can accept. It might be a good idea to introduce some late payment charges to cover any negative effects that this may have on your cash flow. With almost half of all invoices paid late, it’s easy to see how small businesses can start to run short on cash from time to time. However, establishing the appropriate terms and conditions can help you steer clear of these situations. As we wrote about in a prior GovCon Bulletin article, the rule change accelerating government contractor payments was first proposed in September 2021.

• Cash flow is the underlying financial infrastructure for your company’s operations.
• Understanding payment terms is essential for small businesses to ensure timely payments and maintain healthy cash flow.
• On 31 August 2023, the Minister for Small Business, the Hon Julie Collins MP, released the written report of the independent review of the Payment Times Reporting Act 2020.
• However, if you are working with an international client, it’s important to state the currency you wish to be paid in.
• Take Resolve, for instance–they take on the risk of late payments, enabling you to have a continuous cash flow for the business.
• Choosing the right small business accounting software can help you better manage invoicing and payment terms; this, in turn, helps build a stronger company on sounder financial footing.

Report

The definition of small business that is used by signatories must be published and easily accessible. Exceptions may be applied for supplier businesses that are part of a consolidated group of small business payment terms companies. The Business Council is encouraging the federal government and all state and territory governments to promote the code across Australia, including requiring their own agencies to sign on. Trade between small, medium and large businesses is valued at around $500 billion per year, so the whole country benefits when we work together more productively. We encourage you to contact the Business Council directly to discuss the code and what it means for your business. The review made a number of recommendations to address issues raised in the expert panel’s consultation process and to promote greater adoption of the code.

Define your terms in a contract

• If you require such advice, we recommend consulting a licensed financial or tax advisor.
• However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
• Our rigorous editorial process includes editing for accuracy, recency, and clarity.
• Terms vary and usually depend on how long the equipment you’re financing is expected to last.
• Those signed up to the Code will redouble their efforts to ensure payments are made on time and breaches will continue to be publicised by the government in order to encourage compliance.
• Additionally, transparent payment terms can attract clients who appreciate straightforward financial dealings, contributing to customer loyalty.

When I deal with large orders, I find it essential to adjust my payment terms. This helps ensure that I have enough cash flow to manage the costs involved. This way, I can cover initial expenses while Accounting Security keeping my clients happy. If clients know there’s a fee for late payments, they might be more likely to pay on time. I make sure to communicate these penalties clearly in my contracts and invoices.

Invoice sheet example with labels

If you handle multiple clients, it can be overwhelming to keep up with who has paid and who hasn’t. Without a good system in place, unpaid invoices can slip through the cracks. Some customers might pay late or not at all, which makes it harder for businesses to cover expenses and stay afloat. A contra payment happens when two businesses owe each other money, and instead of paying separately, they offset the amounts against each other.

Find out more about understanding contracts.

• To optimize the effectiveness of installment agreements, businesses should conduct thorough credit assessments before entering into such arrangements.
• When I think about running a small business, one of the most important things I focus on is getting paid on time.
• Eventually, you discover some invoices have gone unnoticed, which leaves you with unpaid work.
• ‍Payment terms and conditions provide a legal framework that governs transactions between businesses and their customers.
• State clearly when payment is due, any early payment discounts, and late payment penalties.
• Adding these payment terms to your invoices can improve your customer relationships, cash flow and legal standing.

EOM or Net 30 can delay a business’s flow but potentially increase opportunities. A business owner should consider all the options for an effective invoicing process. Additionally, options like invoice factoring and invoice financing can help with immediate cash flow issues. Contra payment terms are used when the customer is also the supplier, so the customer will purchase supplies instead of making a direct payment. You’ll make both a sales and a purchasing invoice, and you can often find templates for this process using accounting software. If your business performs a service, you may require customers to pay when they receive the service.