Customer Payment Terms That Protect Your Cash Flow

You finish the work on Monday. The client pays thirty days after delivery. Rent does not move with that calendar.

That lag is the cash problem. FDIC Money Smart’s Managing Cash Flow guide says you want customers to pay right away so you can meet your own bills. Customer payment terms are the rule that sets that date.

Key Takeaways

Name the due date before the work starts. FDIC Money Smart says a net 30 invoice means the client pays within 30 days of delivery. Due when the invoice arrives is a shorter ask.
A deposit changes who holds the risk. The SBA lists a minimum deposit on a purchase. SCORE lists payment up front and deposits for new clients or for every client.
Screen the customer before you extend credit. A SCORE cash-flow handout says a credit check comes before you accept the customer or allow terms.
Send the invoice when the work is done. The SBA says to invoice at once and to follow up. SCORE says a delay makes the bill harder to collect.
Match the term to the cash you can spare. A thirty-day wait is a loan you make to the client. Shorten it when payroll cannot wait.

Terms and cash flow
Net 30 vs due now
Deposits vs terms
Set the terms
Discounts and card fees
When they require net 30
The other side of the gap
Mistakes to avoid
Put it on the next job

Payment terms and cash flow

Payment terms cash flow is a timing problem. Accounts receivable is money customers owe you after you deliver and extend credit. FDIC Money Smart uses that definition. Accounts payable is money you owe. The guide says the aim is to collect soon and to pay vendors on the date you agreed. It describes a vendor target of about 30 days. A payment past that agreement is a different move. The same guide says late vendor payments can cut off supply. A SCORE handout says skipping on-time supplier payments is a short fix that comes back on you.

The SBA describes the same squeeze. The wait between the day you pay a supplier and the day a customer pays you is the hard part of cash management. Protect cash flow by closing that wait from both sides. Collect on a shorter cycle. Pay on a negotiated term. Do not skip the bill.

FDIC Money Smart uses a classroom café to show the squeeze. The owner has five thousand dollars left to operate. Students leave for breaks. He has not paid himself. He is asking how he will pay bills when fewer customers come in. Your trade may differ. The pattern is the same. Terms decide whether the cash arrives before the dip.

Net 30 vs due on receipt

Invoice payment terms tell the client the day the money is due. FDIC Money Smart says most invoices are net 30. In that guide, net 30 means the client pays within 30 days of the day you deliver the product or the service. The days between delivery and payment are days you fund the client.

You can ask for a shorter window. The guide says a business can ask a corporate account to pay when the invoice is received. The same guide names 10 days and 15 days. SCORE’s solo-business worksheet lists the same family of choices. Up front. Within 15 days. Within 30 days. A SCORE payment-collection guide adds due upon receipt and the end of the month as examples you might write down.

Term	When cash arrives	What you give up
Due on receipt	FDIC Money Smart says this is payment when the invoice is received.	A client with a payables desk may not be able to pay that day.
10 or 15 days	Shorter than 30. SCORE’s worksheet includes 15 days.	You wait, but the wait is shorter.
Net 30 from delivery	FDIC Money Smart says this is the common invoice.	You carry the cost of the work for up to 30 days.
End of the month	A SCORE collection guide lists this as one way to state the due date.	The wait depends on where you are in the month.
2/10 net 30	FDIC Money Smart says the client may take 2 percent off if they pay in 10 days. Otherwise the bill is due in 30.	You trade 2 percent of the fee for earlier cash.

Put the calendar day on the invoice next to the phrase. FDIC Money Smart says an invoice for a credit sale should state the terms and the ways to pay. A phrase such as net 30 without a date makes the client do the math.

Client payment terms of 10 or 15 days help when the client is a company that can change its cycle. A one-person client may pay when the invoice arrives. Ask which cycle they use before you print one rule for everyone.

Deposits vs payment terms

Deposits vs payment terms is a choice about when the first dollar moves.

A deposit or a full advance puts cash in the account before the work is finished. The SBA lists a minimum deposit with every purchase as one way to speed what customers pay. SCORE’s emergency-fund checklist lists upfront payments and deposits as a way to bring cash in when margins are tight. SCORE’s worksheet asks whether a deposit applies to every client or only to new ones. The worksheet asks how you bill. Monthly. By milestone. On completion. All up front.

Each choice moves cash on a different day.

All up front. You hold the fee before you spend time on the job. Some clients will refuse. SCORE treats that as a policy you choose.
A deposit, then the rest on terms. You share the cash risk. The SBA’s “minimum deposit” fits this pattern. The sources do not set the percentage. You write the share.
Milestones. Cash arrives at stages of the work. You are not unpaid for the whole project.
Monthly. A repeating client pays on a rhythm you can plan.
On completion. The invoice is simple. You carry the full cost until the end.

FDIC Money Smart adds a tool that fits some shops. A gift card brings the full amount up front. The buyer pays before anyone redeems it. That is an advance. It fits a business that sells to the public. It is a weak fit for a custom project.

Set payment terms with clients

A small business payment policy is a short page you use before the first hour of work. SCORE’s collection guidance says to spell out the due date and the ways you accept payment and any penalty for a late payment. Bank transfer or card or online payment are the examples that guide gives. These sources do not set the penalty rate. If you charge one, write the rate in the agreement before anyone is late.

Use this order.

Check the customer. The SCORE handout says to run a credit check before you accept the customer or allow terms. The SBA says to use a credit application and to extend terms only after the customer passes your approval. Cash on delivery is the SBA’s step for a slow payer.
Get the purchase order first. The SCORE handout says larger clients can require a purchase-order number on the invoice. If you finish the work and then ask for the number, you can wait while their accounts desk catches up. Get the number before you start.
Write the deal down. The same handout says some well-funded customers win by outlasting a smaller firm in a dispute. A written term is what you have if the argument reaches that point.
Invoice when you deliver. The SBA says to send the invoice at once and to keep a follow-up system. SCORE’s collection guidance says a delay of weeks lets the client move on. Its picture of a prompt send is the next day.
Chase on a short cycle. The SCORE handout says to remind the customer and then call. A phone call can move your bill up their list. Stay professional and firm. The handout calls it a business issue.

If the open invoices sit in QuickBooks Online, the due date on each invoice is the list you call from. You choose net 15 or a deposit. The file shows who has passed the date.

The discount and the card fee

An early-pay discount is a price cut you offer for speed. FDIC Money Smart says most businesses offer 2/10 net 30. The client saves 2 percent by paying in 10 days. You receive the cash on day 10 instead of day 30. Run the math on your margin before you print the offer. A thin job cannot spare 2 percent. A job that frees cash for payroll might be worth it. SCORE’s reserve article makes the same suggestion in plain language. Ask customers for a shorter window and offer a discount to encourage it.

Cards are a separate trade. FDIC Money Smart says cash avoids processing fees. A card payment is convenient and the business pays the processor and the card issuer. The guide says those fees are not a number you negotiate in most cases. Some small firms stop taking cards. The risk is a lost sale when the customer has no cash. Take cards if the sale depends on them. Price the fee into the job if the margin is tight. Ask for cash when the customer can pay that way and the fee would erase the profit.

When the client requires net 30

Some clients will only accept net 30. Bankrate says the wait for an unpaid invoice can run from 30 to 90 days. You can keep the client and protect the month.

Require the deposit the SBA describes, then put only the balance on net 30.
Offer the 2 percent discount for day 10.
Forecast the gap. The SCORE handout says to project cash for at least six to nine months. Test a drop in sales of 10 percent so you see the shortfall while you can act.
Reconcile the bank account. Bankrate says the reconciliation is how you manage cash and receivables. A deposit that has not cleared is not spendable cash. Match the ledger to the statement. Enter fees and interest.

If the gap is larger than the cushion, Bankrate describes invoice factoring and invoice financing. Factoring sells the invoice. The factor pays an advance and collects from your client. Bankrate says the advance is 70 percent to 90 percent of the invoice. Its example is a thirty-thousand-dollar invoice. A 90 percent advance is twenty-seven thousand dollars. A 4 percent fee is twelve hundred dollars. After the client pays, the example sends eighteen hundred dollars more. The business receives twenty-eight thousand eight hundred dollars in total. A separate Bankrate guide says these products can cost 5 percent or more of the invoice. Financing is different. You borrow against the invoice and your client pays you. You then repay the lender. Bankrate says you can remain responsible if the client never pays. Read that clause. Use this path when you need cash and the client pays reliably and you accept the fee. It is a costly substitute for a shorter term.

The other side of the gap

Customer terms do not fix a supplier bill that is due in cash tomorrow. FDIC Money Smart says many new businesses must pay vendors in cash. After about a year of on-time payment, you can ask the vendor to invoice you and give you 30 days. The SBA says to ask for the longest term you can get. It names net 30 and net 45 and net 60 and net 90. Pay a card balance in full if you use a card to gain a few days. Interest on a carried balance spends the cash you saved. The SBA names consignment. You pay when the product sells.

FDIC Money Smart says not to postpone estimated taxes. A customer term that speeds cash is not a reason to hold tax money.

Pitfalls

One term for every client. A corporate account and a local client do not share a pay cycle. FDIC Money Smart separates the ask.
Net 30 with no date and no deposit. You fund the whole job. The SBA’s deposit and the shorter windows in the FDIC guide are the alternatives.
Work that starts before the purchase order. SCORE says you can be stuck waiting to invoice.
No credit check. SCORE says that raises the chance of a late payment or a debt you never collect.
A verbal deal. SCORE says the written record is what you have in a dispute.
A late-fee rate that appears after the due date. State it in the policy. These sources do not pick the rate for you.
Cards you treat as free. FDIC Money Smart says the processor fee comes out of the sale.
Factoring you do not read. Bankrate says the fee is real and you may owe the advance if the client does not pay.
Supplier bills you skip. FDIC Money Smart says late vendor payments can cut off supply. SCORE says an unpaid supplier bill is a short fix that comes back on you.

Put the policy on the next job

Write the due date and the deposit and the payment methods and any late penalty.
Run the credit check before you offer terms. Use cash on delivery for a slow payer. The SBA names that step.
Get the purchase order before you start, when the client requires one.
Send the invoice when you deliver. Put the calendar due date on it.
Remind, then call. SCORE’s handout puts the call after the reminder.
Project the next six to nine months of cash. Include a 10 percent sales drop.
Reconcile so the cash number matches the bank.

A light set of invoices can live on a written policy and a simple list. When the open balances pile up, keep the due date and the unpaid amount in one record. QuickBooks Online is one place to do that. The policy is yours. The list shows who has passed the date you set.

The term you agree to is the day your cash arrives. Choose it while you can refuse the job.

Sources