What are payment terms in simple terms?

Payment terms are the conditions that specify when and how customers must pay for goods or services. They include details like payment due dates, accepted payment methods, early payment discounts, and late payment penalties.

What are the most common payment terms for small businesses?

The most common payment terms are Net 30 (payment due within 30 days), Net 15 (15 days), and Due on Receipt (immediate payment). Many small businesses also use 2/10 Net 30, offering a 2% discount for payment within 10 days.

How do payment terms affect cash flow?

Payment terms directly impact cash flow timing. Shorter payment terms improve cash flow by bringing money in faster, whilst longer terms may help secure customers but delay incoming payments. Clear terms also reduce late payments.

Can I change payment terms for existing customers?

Yes, you can change payment terms, but it requires clear communication and preferably written agreement. Give existing customers advance notice and explain the reasons. Consider phasing in changes gradually to maintain good relationships.

What happens if customers don't follow payment terms?

If customers breach payment terms, you can charge late payment fees (if specified in your terms), pursue debt collection, or in extreme cases, take legal action. UK law provides statutory rights for late payment interest and debt recovery costs.

Should I offer early payment discounts?

Early payment discounts can improve cash flow and reduce bad debt risk. Common terms like '2/10 Net 30' offer 2% discount for payment within 10 days. Consider your profit margins and cash flow needs when setting discount rates.

What are Payment Terms?

Payment terms are the agreed conditions between a business and its customers that specify when and how invoices must be paid, including due dates, acceptable payment methods, and any early payment discounts or late payment penalties. Understanding what are payment terms is crucial for UK businesses as they directly impact cash flow management, help maintain professional relationships with clients, and ensure compliance with late payment legislation while reducing the risk of bad debts.

Last updated Feb 2, 2026

Published Feb 2, 2026

1 min read

Written by Jordan MaceyAAT

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<p>Payment terms indicate when payments should be made and how. These terms are usually included in the invoices generated by companies and sent to customers.</p>

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