The five primary payment terms in business are Net 30/60/90 (payment due in a set number of days), Cash on Delivery (COD), Payment in Advance (PIA), 2/10 Net 30 (early payment discount), and End of Month (EOM). These terms define when payment is due for goods or services.
Different Types of Payment Terms
End-of-month (EOM) terms operate differently: This type specifies that a payment is due after a set number of days once the month ends. So a Net EOM 5 is due five days after the calendar month ends.
Net 7 payment terms mean that the buyer must pay the invoice amount within 7 days from the date of receiving the goods or services. These terms are designed to ensure prompt payment for sellers, facilitating steady cash flow and operational efficiency by encouraging quick turnover of funds.
This commonly means 30% down payment, 40% after a quality inspection and shipping, and 30% upon receiving the shipment.
Net terms represent the payment timeline within trade credit agreements between vendors and buyers. They're commonly expressed as net 30, net 60 or net 90, and give buyers 30, 60 or 90 days, respectively, to submit payment for the net—or full—amount invoiced.
Letter of credit (LC) is a commitment by the bank on behalf of the importer that the payment will be settled to the exporter as per the timeline mentioned and will be subject to agreed terms and conditions. Telegraphic Transfer (TT) is an electronic fund transfer where money is directly transferred between banks.
Standard invoice payment terms in the UK
Immediate payment - payment is due as soon as the invoice is received. 7 days - often used for short projects or small suppliers. 30 days - the most common standard across the UK. 60 or 90 days - usually applied by larger companies or in construction and manufacturing supply ...
Prearranged Payment and Deposit (PPD) TFM: Prearranged Payment and Deposit is the Automated Clearing House format used by the federal government for consumer payments. Green Book: Prearranged Payment and Deposit (PPD) is the Automated Clearing House (ACH) format used by the federal government for consumer payments.
Net 10 or net 15: Payment is due within 10 or 15 days of the invoice date. Some businesses might offer shorter terms such as net 10 or net 15 if they need to accelerate cash flow, or if the goods or services provided are quickly consumed or resold.
A payment is the transfer of money in exchange for goods and services that have been previously agreed upon by all parties involved. There are many different types of payment methods. A payment can be accepted in the form of cash, check, ACH payments, credit card payments, debit card, check, or from a mobile device.
Net 30/60/90 terms are popular and easily accepted because they've become the industry standard, and buyers are familiar with them. They also offer a compromise, giving the buyer time to pay in full while not straining the seller's cash flow management.
FOB (Free On Board): Seller delivers to port; buyer takes over after loading. CIF (Cost, Insurance, Freight): Seller covers freight + insurance till destination port. DDP (Delivered Duty Paid): Seller handles everything — right up to the buyer's doorstep.
When to Use a Letter of Credit or Bank Guarantee. The decision to use one over the other depends on the transaction's nature. If payment assurance is key, an LC is ideal for international trade. If the concern is performance or delivery obligations, a BG serves contractual needs better.
Two types of payment conditions:
Document against payment (D/P) : Documents are released only if the buyer has done immediate payments as agreed between buyer and seller at Sight basis. Document against acceptance (D/A) : Documents are released when the buyer accepts the bills of exchange/draft.
Speed: TT is typically faster, with funds transferred directly between bank accounts, whereas LC involves more documentation and processing time. Cost: LC can be more expensive due to bank fees for issuing and processing the letter, while TT generally has lower fees associated with the transfer.
Top 8 Payment Methods and How to Accept Each Payment Mode
This is a common payment term in international trade where the buyer pays 30% of the total order value upfront as a deposit. The remaining 70% is paid before the goods are shipped out from the supplier's location.
Cash before shipment (CBS) are payment terms that require the buyer to pay for the goods, in part or in full, prior to their shipment. You may see CBS used when ordering custom-made products, in international trade, or during quick turnaround orders.
The e-invoice generation time limit defines the maximum period between the invoice date and the time it is reported on the Invoice Registration Portal (IRP) to generate an Invoice Reference Number (IRN). Under the current guidelines, users must upload invoices within 30 days from the invoice date.