When should your customer pay your invoice?
Invoicing a customer is merely a step in the getting paid process. When you think about it, invoicing is nothing more than a formatted message from vendor to customer saying the vendor thinks it’s time the customer paid for whatever good or service has been or is about to be delivered. It’s a request for money.
If you’re a customer, when should you pay an invoice?
For many invoices this is made perfectly clear by displaying an easy to read and understand date. But that’s not the case for all invoices.
Here are some common problems I’ve seen with invoices relative to a customer deciding when to pay:
- No payment due date – Believe it or not, this is not uncommon. I’ve seen and received invoices with no stated date when payment is due. So, when do you pay an invoice with no due date? Most won’t pay on receipt, many won’t pay within two weeks, and some won’t pay at all. It’s hard to be late paying an invoice that’s never due.
- NET terms – This too is common, payment on NETx terms (x= 15, 20, 30, etc. days). The problem is many customers don’t know when the clock starts. You may think the clock started when you sent the invoice, using the invoice date as Day 0, but what does your customer think? Differing views of Day 0 can cause delay of payment by weeks or more, depending on your agreed terms. In a cash flow crisis, a few days delayed getting paid can mean a lot and have negative consequences.
- Due at project completion – I love this one. What constitutes a project and when is it complete? Who decides when it’s complete and by what criteria? These are all things that should be decided before you begin a project with such terms.
Getting paid in a timely manner is critical to good cash flow management. You and your customer need to have a common understanding of when you should expect to receive payment. Be sure your payment terms and expectations are crystal clear. The best practice is to list a date when payment is due – dates are hard to misinterpret.
What invoicing terms have you seen as a problem? What best practices would you recommend to timely getting paid.
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Is using Net terms based on End of Month (EOM) for day 0 a good or bad idea? It seems simpler for our accounting and eliminates questions about what is really Day 0 for customers.
Hi Jason! As a general rule, it’s not a good idea – certainly not the best. If Day 0 is the first of the month, that means you’re asking for payment on a particulr day of the month, which is monthly billing.
Monthly billing is fine – that’s how mortgages, car payment, and most every household bill works. But it’s not NET terms.
NET terms are when payment is due x number of days after an event – delivery, report, update, start date, etc.
The point of this post regarding Day 0 is to make sure your customer has the same understanding as you do on which day is Day 0. Doing so means you both know when Day x arrives and payment is due.