Credit Management: #2 Configuring Right Payment Terms for Credit Control

Think about the last time you ordered something online and saw that little note at the checkout, "Pay on Delivery" or "Pay later".

It's simple, but it actually sets the tone. As a business owner, you know exactly when payment is expected.

Now, imagine a local printing shop that supplies business cards to offices around the town. Some clients pay immediately, while others take 30 days to clear invoices. If everyone pays on their own schedule, the shop's cash flow would become unpredictable overnight.

That's where Payment Terms become crucial. They define the rules for payment, set expectations upfront, and form the foundation of good credit management.

Why Setting up Payment Terms is Important? 

Payment terms are more than dates on an invoice. They are agreements that balance trust, flexibility, and financial control. They determine when payment is due, how it should be made, and what happens when the payment is delayed.

Setting up clear payment terms protects both sides of a transaction. Customers know exactly when payment is expected. On the other hand, businesses can forecast revenue, plan their expenses, and maintain a steady cash flow.

Even the best credit tracking system can't prevent delays or disputes when payment terms are vague or unclear.

Standard Payment Terms in Business  

While every industry defines terms differently, most of them follow familiar patterns. Let's look at the most common ones with examples to help you visualise them.

Immediate (Due on Receipt):

Payment is expected as soon as the invoice is issued. This is most popular in retail sales and one-time services.

For example, a freelance photographer delivers final photos and sends an invoice marked "Due on Receipt." The client pays immediately via card or online transfer.

Shot- Term Credits (Net 5/Net 7/Net10/Net 15):

These terms allow customers a short grace period to make payments. They are common in fast-moving businesses where the cash flow cycle is tight.

For instance, an event management company gives the office 10 days to pay after each event. This builds loyalty while keeping payments predictable.

Standard Credits (Net 30/Net 45/Net 60):

These are the most widely used payment terms in B2B sales. They give customers flexibility while ensuring the business has a steady cash inflow.

A software reseller issues invoices on Net 30 terms, giving customers a full month to pay while they plan their cash outflows.

End of the Month (EOM or Net 30 EOM):

Here, invoices are due a certain number of days after the end of the month they were issued. It simplifies accounting for customers handling multiple purchases.

Imagine a stationery supplier invoices schools throughout the month, but all payments are due 30 days after month-end, making bookkeeping easier for both sides.

Milestone or Progress-Based Terms:

Payments are linked to project stages rather than just dates.

A construction firm bills 20% upfront, 50% mid-project, and the remaining 30% at the end, ensuring steady cash while aligning with project delivery.

Downside of Improper Payment Terms 

Your payment terms directly influence your business's cash flow. To be precise, shorter terms improve liquidity but can strain customer relationships. Long-term improves customer flexibility but stretches receivables.

Setting up consistent and transparent payment terms helps businesses to avoid unpredictable gaps between invoices and payments.

Configure & Manage Payment Terms in Zoho Billing 

Defining and enforcing payment terms becomes easy when your billing system handles them automatically.

With Zoho Billing, businesses can:

• Set flexible payment terms per customer or invoice.

• Automate due date calculation based on chosen terms.

• Show the payment terms clearly on the invoices and email notifications sent to customers.

• Send automated reminders before and after the set due date.

• Apply a late fee based on the due date.

• Track receivables based on the ageing report to find customers with chronic delays.

By setting the right payment terms along with the automations, you can ensure that every credit sale has a timeline, every invoice is accountable, and every customer relationship is transparent.

A reasonable credit control starts not from cashing payments but from setting expectations early and managing them consistently.

Letting customers pay on credit is one side and allowing credits a threshold of credits is another leverage many businesses offer these days.

Up Next: Setting up Credit Limit for Customers. 

• Topic Participants

• Hari Hara Sudhan. S

  

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