Standard Payment Terms
Payment terms are written as "Net X," meaning payment is due X days from the invoice date. Standard options:
Net 15
Payment due 15 days after invoice. Best for high-risk customers, small invoices, or customers with uncertain credit. Speeds up cash flow significantly.
Net 30
Payment due 30 days after invoice. Industry standard for B2B. Balances customer convenience with reasonable cash flow. Most SaaS, consulting, and service businesses use Net 30.
Net 45 / Net 60
Payment due 45–60 days after invoice. Common for large contracts, established customers, or industries with slower approval cycles (e.g., government contracts, enterprise software). Trade-off: better customer relationships but weaker cash flow.
Due on Receipt (DOR)
Payment due immediately or within 3 days. Used for prepayments, COD (cash on delivery), or high-risk scenarios. Rarely works for credit transactions.
Pro tip: Shorter terms improve cash flow and reduce collection risk. If you can afford to offer Net 45, you're already cash-positive enough; tighten to Net 30 to reinvest faster.
Late Fees
Late fees—also called "interest," "finance charges," or "collection costs"—penalize late payers and compensate you for the cost of following up. They're highly effective at reducing late invoices.
How to structure late fees
Fixed fee: $50–$100 per invoice. Simple, easy to calculate, predictable. Works for invoices of similar size.
Percentage per month: 1–2% per month (12–24% annually). Scales with invoice amount. More common in service industries.
Statutory rate: UK: 8% per annum + Bank of England base rate. EU: 8% per annum + reference rate. US: State and contract-dependent. Use our Late Fee Calculator to compute accrued interest.
Legal note: Late fees must be "reasonable" and clearly stated in your contract before the invoice. Excessive fees may be unenforceable. Consult your accountant and lawyer on rates for your jurisdiction.
Retention of Title
Retention of title (or "retention clause") states that you retain ownership of goods sold until payment is received in full. This is your ace card if a customer defaults on payment: you have the legal right to repossess.
Example clause: "All goods remain the property of Seller until full payment is received. Buyer may not resell or pledge these goods as collateral without written permission."
When it works: Physical goods (equipment, materials, inventory). The customer receives the goods but doesn't own them until payment clears. If they default, you repossess.
When it doesn't work: Services, software licenses, or digital products. You can't repossess a delivered service. Retention clauses have no power here.
Personal Guarantees
A personal guarantee is a signed promise by an individual (usually the business owner) that they will pay if the business cannot. It makes the owner personally liable, not just the company.
Highly effective. A personal guarantee increases payment pressure dramatically. Owners prioritize invoices with personal guarantees. Many will redirect personal assets to avoid default.
When to use: Small business or startup customers with weak balance sheets. Loan-like arrangements or large single contracts. If you're uncomfortable with the customer's creditworthiness, require a personal guarantee.
Example: "The undersigned Owner of [Company] personally guarantees all payments due under this agreement. If [Company] fails to pay, Creditor may pursue collection against the Owner personally."
Legal note: Personal guarantees must be signed and dated. Unsigned guarantees are unenforceable. Have your lawyer draft the language; consult on enforceability in your jurisdiction.
Other Protective Clauses
Payment Plan Acceleration
For payment plan agreements, state that missing two consecutive payments triggers acceleration: the full remaining balance becomes due immediately. This prevents customers from defaulting partway through.
Dispute Resolution
Specify how disputes are resolved: negotiation, mediation, or arbitration. Avoid "loser pays" clauses; they can backfire if you pursue a weak claim. Arbitration is faster than court but costs upfront fees.
Jurisdiction
Specify which state/country's laws govern. This prevents customers from dragging you into their home jurisdiction for lawsuits. Use your own jurisdiction if possible.
How to Get Terms Accepted
State terms upfront. Send a signed contract or Terms of Service before work begins. Don't assume verbal agreements are enforceable—they often aren't.
Repeat on invoice. Include payment terms on every invoice. "Payment due within 30 days" should appear in clear text.
Make it easy to accept. Use a standard contract template. Many customers skip signing if it's complicated. Your lawyer can draft once; reuse for all customers.
For large deals: Negotiate terms with the customer upfront. Larger contracts have leverage to adjust terms. Agree in writing before starting work.
Next Steps
Audit your current terms. Review contracts with your top 10 customers. Are payment terms stated? Are late fees included? Do you have personal guarantees for risky customers?
Standardize. Create a template contract that you use for all new customers. Update it once a year with legal advice. Consistency prevents disputes.
Enforce consistently. If you state Net 30 terms, enforce them. Send reminders at day 28. Call at day 35. Inconsistency signals you don't care, and customers will take advantage.
Monitor and adjust. Track your Days Sales Outstanding (DSO). Use our Contract Check tool to audit payment protection clauses. Tighten terms for customers who chronically pay late.