Getting paid on time is important for businesses of all sizes. Cash flow problems can make it difficult to pay your suppliers and keep up with expenses, leaving your business in a precarious position. Although the government has been making positive statements about tackling late payments, so far, there’s little I the way of legally binding regulations. That’s why it’s so important to get your invoice payment terms right from the start. Find out more about invoice payment terms in Australia, including standard conventions and how to put payment terms on an invoice.
Payment terms meaning
So, what are invoice payment terms? Essentially, payment terms detail how your customers can pay for the goods and services you provided, and when you expect them to pay. Usually, payment terms include a couple of key pieces of information, including:
Invoice due date – Firstly, you should indicate the date by which payment is due. This should be clearly visible on the invoice so that the client’s accounts payable team understand exactly when they need to action payment.
When you expect to be paid – You need to stipulate whether you expect to be paid upon receipt of the invoice or within a week, a month, two months, and so on.
Late payment fees – You can also indicate an overdue fee if invoices are paid late, although it’s worth remembering that some clients will not respond well to this and it could damage potential future business with the client.
The payment methods you accept – You should detail how you accept payment and the different payment methods your customers can use. For example, some of the most commonly used payment methods include bank transfer, card payment, digital wallet, or Direct Debit.
Currency you want to be paid in – You also need to specify the different currencies you accept. If you’re doing business with overseas customers, you should specify that payment must be made in AUD, rather than GBP or USD.
Debt collection policies – Include a description of the action you’ll take if a customer doesn’t pay their debts. For example, this may include phoning/emailing to request payment, a letter of demand, or debt collection services.
Whether you provide credit, and if so, the terms of credit – Finally, you should include an outline of your credit policies and terms of credit. Standard credit terms include no credit, 7 days to pay, 21 days to pay, and 28 days to pay.
How to put payment terms on an invoice
Including payment terms on an invoice is a relatively simple process. You should put your invoice payment terms at the bottom of the document, clearly marking them for customers to see. If you’re not confident about producing the invoice yourself, you can use an online invoice template that will likely include a section for payment terms. All you need to do is fill it in with your company’s specific details.
How long should my payment terms be?
The amount of time that you leave for your customers to make payment is entirely up to you. Many businesses provide 30-day payment terms (also referred to as net 30), but there are other payment terms you can use if preferred, including 7-day, 14-day, 45-day, 60-day, or 90-day terms. In addition, you can request payment upon receipt of invoice, but be aware that many larger businesses will simply ignore this stipulation, as they expect 14-day or 30-day terms at a minimum.
If you’re worried about payment, there are other payment options that you can include in your invoice payment terms. For example, you can ask for 50% upfront to make sure that your client is committed to doing business. This is particularly common with freelancers and service-based businesses. Some businesses ask for 100% upfront, although this is much less common and is generally reserved for businesses with retainers, rather than standard invoices.
How much late payment interest should I add?
It can be a smart idea to include late payment interest or overdue fees in your payment terms. But how much late payment interest should I charge? While there’s no specific amount of late payment interest defined by law, that doesn’t give you free license to charge an excessively high amount. On the whole, late payment interest should be capped at around 10% annually.
When it comes to invoice payment terms in Australia, you should think long and hard about what’s going to work for your business. Don’t allow long payment terms if they’re going to cause your business cash flow problems. By the same token, don’t include overdue fees that you’re not prepared to enforce. If you take your payment terms seriously, your customers will too, and you can go some way to avoiding the headaches associated with late payments.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.