Payment terms provide a clear answer and are a standard part of every incoming invoice.
What do payment terms mean on an incoming invoice?
Payment terms define the agreed timeframe within which an invoice must be paid. They are typically stated clearly on the invoice and offer the recipient a reliable reference: when the payment is due and under what conditions.
Common examples include:
- “Payable within 14 days”
- “Net 30 days”
- “Payment due within 10 days”
Payment terms are more than just a formality. They are a key element of any business transaction. They influence liquidity planning, create clarity, and – depending on how they’re structured – can incentivize early payment.
When do payment terms start?
In most cases, payment terms begin on the invoice date. This date marks the starting point for the agreed payment period—such as “14 days net” or “30 days from invoice date.” The invoice itself becomes the reference for calculating the due date.
In some cases, payment terms may be tied to other events, such as:
- Goods receipt: relevant for delivery contracts with shipping notices
- Service completion: common in project-based work
- Invoice receipt: especially in public sector or international transactions
Example:
An invoice dated October 1 with “Net 30 days” is due by October 31—assuming the terms refer to the invoice date.
Common payment terms
In practice, payment terms vary depending on industry, contract type, and customer relationship. They not only define the payment period but also serve as a tool to encourage prompt payment.
Typical formats include:
- Due immediately without deduction
Payment is expected right after receiving the invoice. Common for digital services or direct purchases. - Net 14 days
Payment within 14 calendar days from the invoice date, without any discount. Often used in service contracts. - Net 30 days
Payment within 30 days, also without discount. A standard in B2B transactions, especially for recurring deliveries. - Discount terms (Skonto)
Example: “2% discount if paid within 10 days, otherwise net 30 days.”
This format rewards early payment with a price reduction and is widely used in retail and wholesale. - Custom agreements
In long-term projects or with public clients, longer payment terms may be agreed—such as 60 or 90 days.
The choice of payment terms directly affects the liquidity of both parties. Longer terms offer more flexibility for the payer, while the issuer must wait longer for incoming funds.
Payment terms vs. payment deadline
The terms payment terms and payment deadline are often used interchangeably—but they’re not exactly the same. A closer look reveals two distinct perspectives on the same process.
Payment terms: The agreement
Payment terms are a contractual arrangement. They’re usually stated on the invoice and define when the amount is due. They’re based on mutual agreement between business partners.
Example:
“Payable within 30 days net” is a classic payment term.
Payment deadline: The legal limit
The payment deadline refers to the legally permitted timeframe for settling an invoice when no specific payment terms have been agreed. In the U.S., this is governed by contract law and may vary by state or industry. In Germany, for example, the law states that 30 days after receiving the invoice, the payer is automatically in default—unless they’re a consumer (§ 286 Abs. 3 BGB).
Why does the distinction matter?
- Payment terms are a flexible tool in business transactions.
- Payment deadlines serve as a legal safeguard when no agreement exists.
Anyone handling invoices should understand both concepts and apply them appropriately. A clearly defined payment term creates certainty before legal deadlines come into play.