Invoice Payment Terms Explained: Net 30, Net 60, and More
Understand common payment terms and choose the right ones for your freelance business.
Payment terms define when your client needs to pay you after receiving an invoice. They might seem like minor administrative details, but the payment terms you choose can significantly impact your cash flow, client relationships, and overall business health. Understanding these terms is essential for maintaining healthy finances as a freelancer.
Common Payment Terms Explained
The most common payment terms you'll encounter include Net 30, Net 60, and Due on Receipt. Each has its place depending on your industry, client relationship, and cash flow needs.
Due on Receipt
This means payment is expected immediately upon receiving the invoice. In practice, most clients interpret this as "within a few days." This term is common for smaller projects, one-off work, or when working with new clients you haven't yet built trust with. It's also standard for retail and service businesses where work and payment happen close together.
The advantage of Due on Receipt is obvious: you get paid quickly. The downside is that some larger companies or corporate clients may not be able to process payments this fast due to their internal accounting cycles.
Net 30
Net 30 means payment is due 30 days after the invoice date. This is probably the most common payment term for freelancers and gives clients a month to process payment. It's a reasonable middle ground that works for most business relationships.
For freelancers, Net 30 requires you to manage your cash flow carefully. If you complete work at the start of the month and invoice immediately, you might not see that money for 5-6 weeks (30 days plus the time it takes for the payment to actually arrive). Plan accordingly and don't rely on that income for immediate expenses.
Net 60 and Net 90
Payment due 60 or 90 days after invoice date. These longer terms are less common for freelancers but sometimes required by larger companies, particularly corporations with complex procurement processes. Government contracts often use these extended terms as well.
Think carefully before accepting Net 60 or Net 90 terms. Can you afford to wait two or three months for payment? If you're doing ongoing work for this client, you might have invoices from multiple months outstanding simultaneously. Make sure your business can handle this cash flow gap.
Payment in Advance
For some projects, particularly larger ones or work with new clients, you might request full or partial payment upfront. Common structures include 50% upfront and 50% on completion, or a deposit followed by milestone payments. This reduces your risk and helps with cash flow on longer projects.
Advance payment is standard practice in many industries and isn't unreasonable to request. If a client pushes back, it might be a warning sign about their payment reliability.
Choosing Your Terms
Consider your cash flow needs and client relationships when setting payment terms. Don't be afraid to negotiate terms that work for your business. Here are some factors to think about:
Your financial runway: If you have limited savings or reserves, shorter payment terms help you maintain steady cash flow. If you have a financial cushion, you can afford to be more flexible.
The client relationship: Long-standing clients with a track record of prompt payment might earn more generous terms. New clients should generally start with shorter terms until they've proven reliable.
Industry norms: Some industries have standard payment terms. While you don't have to follow them blindly, going against industry norms might create friction with clients who expect certain terms.
Project size: Larger projects might warrant different terms than small ones. For a £500 project, Net 30 is reasonable. For a £50,000 project, you might want milestone payments rather than waiting for a lump sum at the end.
What to Do When Clients Want Longer Terms
Sometimes clients, especially larger companies, will insist on Net 60 or longer terms as a matter of policy. You have options here: you can accept the terms if your cash flow allows, you can negotiate (some companies have flexibility even when they claim they don't), or you can walk away if the terms don't work for you.
One middle-ground approach: accept longer payment terms but adjust your pricing to account for the delayed payment. If a client wants Net 60 instead of Net 30, your quote might be slightly higher to compensate for the additional month you're essentially financing the work.