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A payment term specifies the period within which a client must settle an invoice after receiving it. In the UK, payment terms are governed by a combination of statutory regulations and contractual agreements. Understanding these terms is crucial for businesses to manage cash flow effectively and ensure timely payments.
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A payment term defines the timeframe within which a customer is expected to pay an invoice. Common terms include “Net 30,” indicating payment is due within 30 days of the invoice date. These terms should be clearly stated in contracts and invoices to set clear expectations.
| Party | Typical Term | Notes |
|---|---|---|
| B2B (Business-to-Business) | Net 30 / Net 60 | Subject to agreement; must not be grossly unfair to the supplier. |
| Public sector contracts | 30 days | Mandated by the Procurement Act 2023, effective from 24 February 2025. |
| B2C (Business-to-Consumer) | Flexible | No statutory standard; terms should be reasonable and clearly communicated. |
| Large corporations | Often Net 60 or more | May impose longer terms; however, must ensure terms are not grossly unfair to suppliers. |
While standard payment terms are common, parties can agree to custom terms provided they are fair and transparent. The Late Payment of Commercial Debts (Interest) Act 1998 allows suppliers to charge interest on overdue payments and claim compensation. However, parties can contract out of these provisions if the contract provides a substantial remedy for late payment.
Under the Late Payment of Commercial Debts (Interest) Act 1998, statutory interest can be charged on late payments at a rate of 8% above the Bank of England base rate. Additionally, fixed compensation amounts can be claimed, depending on the size of the debt.
If a debt remains unpaid, businesses may engage debt collection agencies, and the associated fees can sometimes be passed on to the debtor, depending on the contractual agreement.
Persistent non-payment may lead to legal proceedings, including claims in the small claims court or higher courts, depending on the amount owed.
Even the most well-defined payment terms are only effective if your customers adhere to them. Fortunately, there’s plenty you can do to minimise the risk of late payments. With clear agreements, proactive follow-up, and the right tools, you can stay firmly in control of your credit management.
Clearly state payment terms on all invoices, including:
Ensure these terms are also included in contracts and communicated upfront to clients.
Implement a system to send reminders:
Automating this process ensures consistency and reduces administrative workload.
Managing multiple invoices manually can be time-consuming. Accounts receivable software like Payt streamlines the process by:
For example, an invoice sent on the 1st of the month can have automated reminders set for the 14th and 21st, ensuring timely follow-ups without manual intervention.
Including clear payment terms on invoices helps prevent misunderstandings. Examples:
Ensure these terms align with contractual agreements and are legally compliant.
Place payment terms prominently on the invoice, typically below the total amount or near the billing summary. Also, include them in your terms and conditions, quotes, and contracts to reinforce clarity.
Effective credit management involves more than sending reminders; it requires visibility, structure, and control. Payt’s software offers:
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“Net 30” means the full payment for an invoice is due within 30 calendar days from the invoice date. It’s a common term in B2B transactions, providing the buyer time to process payment while allowing the seller to manage cash flow expectations.
“Net 15” indicates that payment is expected within 15 calendar days after the invoice date. This term is often used by freelancers or service providers seeking quicker payment while offering clients some flexibility.
“Net 14” is a less common term indicating that payment is due 14 calendar days from the invoice date. While not standard like Net 30 or Net 15, Net 14 is enforceable if both parties have agreed to it in writing.
