Payment Terms

What Are Payment Terms?

Payment terms are the conditions stated on a vendor invoice that specify when payment is due and whether any discounts or penalties apply. They are a contractual element of the buyer-seller relationship, agreed upon when the vendor relationship is established and printed on each invoice.

Common Payment Terms

Net 30 — Full payment is due 30 days from the invoice date. The most common payment term in North American B2B transactions.

Net 60 / Net 90 — Full payment due in 60 or 90 days. Common in industries with long cash cycles (construction, manufacturing, staffing).

Net 10 / Net 15 — Faster terms, often used by smaller vendors or those with tight cash needs.

2/10 Net 30 — A prompt payment discount: the buyer can deduct 2% if they pay within 10 days; otherwise, the full amount is due in 30 days. The first number is the discount percentage, the second is the discount window in days.

Due on Receipt — Payment is expected immediately upon receiving the invoice. Common for one-time service providers or new vendor relationships.

COD (Cash on Delivery) — Payment is collected at the time of delivery. Common in retail and food distribution.

EOM (End of Month) — Payment is due by the last day of the month in which the invoice was issued, regardless of the invoice date.

1st Prox / 15th Prox — Payment is due on the 1st or 15th of the following month (proximate = next month). Less common, but appears in some industries.

How Payment Terms Affect Cash Flow

For buyers, longer payment terms are favorable — they allow the business to use that cash for longer before it goes out. For vendors, shorter terms improve cash flow. This is why large companies often push suppliers to accept Net 60 or Net 90 terms while small vendors push for Net 15 or Due on Receipt.

Early payment discount terms like 2/10 Net 30 are genuinely worth evaluating: a 2% discount for paying 20 days early is equivalent to an annualized return of approximately 36%. If the business has cash available, taking the discount is usually the right financial decision.

Due Date Calculation from Invoice Date

The due date is calculated from the invoice date (not the date received). Net 30 on an invoice dated March 1 means payment is due March 31. This matters for bookkeepers: if an invoice arrives late, the due date may be sooner than expected based on receipt date.

How Payment Terms Appear on Invoices and Why Extracting Them Matters

Payment terms typically appear in a designated field near the invoice date and due date. Common label variations: "Terms," "Payment Terms," "Net," "Due." Extracting payment terms enables automatic due date calculation and AP aging reporting without manual interpretation of each invoice.

Why Bookkeepers Need to Track Payment Terms Accurately

Accurate payment terms tracking directly affects:

Cash flow management — Knowing when each bill is actually due allows bookkeepers to advise clients on timing payments to maximize available cash.

Capturing early payment discounts — Missing a 2/10 window is a real financial cost.

Avoiding late payment penalties — Some vendors charge late fees (1.5–2% per month is common), which represent avoidable expense.

AP aging accuracy — An AP aging report sorted by due date is only meaningful if due dates are correct, which requires correct payment terms.

SkipEntry extracts payment terms as a standard field, enabling accurate due date population in exported vendor bills.