Invoice payment terms: 7, 14 or 30 days?

Short answer: for most small businesses, 7 or 14 days is a fair default, and many now ask for payment within two weeks. Use 30 days, or “20th of the month following”, only when a customer insists on it, usually a larger business with a monthly payment run, and price that wait in. Whatever you choose, customers tend to pay a week or two after the due date, so the terms you print set how long your money sits with them. Shorter terms, invoicing the day the work is done, and chasing on the first day an invoice is late do more for cash than almost anything else a small business can change.

What the common terms mean

Terms on the invoice	When it is due	Suits
Due on receipt / today	The day the invoice arrives	One-off jobs, new customers, small amounts
7 days (net 7)	7 days after the invoice date	Trades, freelancers, small regular jobs
14 days (net 14)	14 days after the invoice date	A common middle ground for regular customers
30 days (net 30)	30 days after the invoice date	Larger customers that pay once a month
20th of the month following	The 20th of the month after the invoice month	Trade accounts in Australia and New Zealand
End of month following	The last day of the month after the invoice month	Large customers; the longest wait here

“Net” just means the full amount, with no discount for paying early. Count the days from the invoice date, so send the invoice the day the job is finished, not at the end of the month.

What your terms do to your cash

The money customers owe you is cash you have earned but cannot spend. The rule of thumb: money tied up = what you invoice per day × the days customers actually take to pay. Halve the days and you free half that cash, once, for as long as the new terms hold.

A worked example: a commercial cleaner in Brisbane

These figures are made up. The business invoices $730,000 a year including GST, about $2,000 a day.

1. Today, on 30-day terms, customers take 41 days on average (the debtor days calculator works this out from the Aged Receivables total). That ties up $82,000.
2. On 14-day terms for new contracts and renewals, and with customers still paying about 11 days late, they take 25 days. That ties up $50,000, so $32,000 comes back into the bank over the next few months.
3. What that money is worth. Borrowing $32,000 on an overdraft at 10% would cost about $3,200 a year. Shorter terms do the same job for nothing, and the business is less exposed if a customer goes under owing it money.
4. Why “20th of the month following” is longer than it looks. An invoice dated the 1st waits 50 days; one dated the 31st waits 20. With work spread across the month the average is about 35 days, longer than 30-day terms, before anyone pays late.

Should you offer a discount for paying early?

Usually not. “2% off if you pay in 10 days instead of 30” gives up 2% to get the money 20 days sooner. Over a year that works out to about 37.2% interest, far more than an overdraft or a business loan costs. If you want faster payment, shorter terms and a payment link on the invoice are cheaper than a discount.

The rules where you trade

• UK: if no terms are agreed, the Late Payment of Commercial Debts (Interest) Act 1998 makes a business-to-business invoice due after 30 days. On a late invoice you can claim statutory interest at 8% plus the Bank of England base rate, and fixed compensation of £40 (under £1,000), £70 (£1,000 to £9,999.99) or £100 (£10,000 or more). Most small businesses never claim it, but quoting it in a reminder often gets paid. The late payment interest calculator works out the figure for an invoice.
• Australia: there is no general legal default for business invoices; the terms you agree are what count. Large businesses report how fast they pay small suppliers under the Payment Times Reporting Scheme, and many big companies have signed up to pay small suppliers within 30 days or sooner, so asking a large customer for shorter terms is reasonable.
• New Zealand: there is no general legal default we know of for business invoices outside construction contracts, so the agreed terms apply. “20th of the month following” is a common trade term.

Put your terms in your quote or contract as well as on the invoice; terms that first appear on the invoice are harder to enforce. If in doubt about a specific contract, ask your accountant or lawyer.

How to set payment terms in Xero

1. The default for every invoice: in Xero’s invoice settings, set the default due date for sales invoices, as a number of days after the invoice date, days after the end of the invoice month, or a day of the following month.
2. Different terms for one customer: open the contact and set their sales invoice due date under their payment terms. A contact’s terms override the default on new invoices.
3. Check what customers really do: the Aged Receivables Summary shows who is past due and by how much. Who owes me money in Xero walks through it.
4. Automate the chasing: Xero’s invoice reminders email customers a set number of days before or after the due date (Xero invoice reminders covers the settings), and an online payment option on the invoice removes one more reason to wait.

Common mistakes

• Invoicing at the end of the month. A job finished on the 3rd and invoiced on the 31st adds four weeks to every term.
• Copying big-company terms. A small business giving 30 or 60 days is lending its customers money for free.
• Changing terms without telling customers. Write to existing customers before new terms start, and apply them to new contracts and renewals first.
• Not chasing on day one. A polite reminder the day after the due date gets most invoices paid; waiting a month teaches customers that late is fine.
• Judging by the terms, not the days. Track how long customers really take, every month. How to improve cash flow in a small business compares faster collection with the other ways to free cash.

Common questions

What payment terms should a small business use? For most small businesses, 7 or 14 days from the invoice date. Use 30 days or end of month following only when a large customer insists, and build the wait into your price.

What does net 30 mean? The full amount is due 30 days after the invoice date, with no discount for paying early. Net 7 and net 14 work the same way over 7 and 14 days.

Is 30 days payment terms normal? It is common with larger businesses that pay suppliers once a month, but many small businesses now ask for payment within 14 days or less. Shorter terms mean less of your cash sits with customers.

What does 20th of the month following mean? The invoice is due on the 20th of the month after the month it was dated. An invoice dated 1 March is due on 20 April, 50 days later; one dated 31 March is due 20 days later.

Can I charge interest on late invoices? In the UK, yes: the Late Payment of Commercial Debts (Interest) Act lets a business charge 8% plus the Bank of England base rate and a fixed £40 to £100 compensation on late business invoices. In Australia and New Zealand you can charge interest if your agreed terms say so, so put it in the quote or contract.

How do I change payment terms in Xero? Set the organisation’s default due date in the invoice settings, and set a contact’s own terms in their contact details. New invoices then use the contact’s terms if they have them, or the default if not.

See who is paying late every Monday

ReportPilot reads your Xero figures and sends a short plain-English email every Monday, with a 24-month dashboard behind it. It covers the cash in the bank against the end of last month, sales and profit against last month and the same month last year, money owed to you that is past due, and bills due in the next two weeks against your cash. It does not change your terms or chase customers for you. It asks Xero for read-only access, and there is a 14-day free trial with no card.