The payment term specifies the latest by when an invoice is to be paid. In this article we summarize what you have to pay attention to when choosing the deadline and what happens if the invoice is not paid on time.
Payment term – definition
The payment deadline is stated on the invoice and indicates by what date the requested amount must be paid at the latest without incurring additional costs such as reminder fees or legal consequences.
From the point of view of the accounting company, a short payment term is desirable so that the required amount is available quickly. At the same time, on the other hand, the buyer side would like to exhaust the payment term as much as possible in order to pay late themselves and to keep the amount in their own sphere for as long as possible.
Formulating the payment term – which formulation can be used on the invoice?
What is the usual payment term and how does it have to be stated on the invoice? On the one hand, there are legal requirements for this, on the other hand, flexible adjustments can also be implemented.
Legal term of payment
It is legally stipulated that an invoice is due immediately, but the default of payment only occurs after 30 days. This means that customers are given a payment period of 30 days – regardless of whether they are private customers or business customers. In this context, however, it is important to point out that invoices sent to private customers must include the payment term of 30 days. This is advisable for business customers, but not absolutely necessary.
Alternatively, other payment deadlines can be agreed individually.
Individual payment terms
Unless otherwise specified, the legally stipulated payment term applies. However, it is possible to shorten or extend this period. This cannot happen arbitrarily, but must take place amicably. A common option is to specify a different payment term in the terms and conditions to which the customer agrees when purchasing the goods. It is also conceivable between companies that a different payment term will be contractually agreed, for example in the case of larger projects, in which there is first a quick down payment and later a long payment term.
Payment terms can thus be individually adjusted, it only has to be communicated transparently and jointly determined when which amount is due.
When does the payment deadline apply?
30 days payment term is well and good, but from which day does this period start to run? It depends on how the invoice is sent. When shipping by post, three working days are calculated for delivery. The period begins to run from the time the customer receives the invoice. If the invoice is sent by email, it can be assumed that it will be delivered practically immediately and that the period begins immediately after it has been sent.
But be careful: A read confirmation should be requested so that a customer cannot say that he has not received an invoice by email. Alternatively, the invoice can also be made available via accounting software, which can be used to track the opening of the file.
When does the payment period expire?
The period begins to run on the day on which the customer receives the invoice. This expires on the last day of the deadline. If this day falls on a weekend or a public holiday, the next working day should be used.
Payment deadline has expired – what happens now?
If an invoice is not paid, the further course of action depends heavily on the relationship with the customer. In the first step, a payment reminder is usually sent. This does not contain any reminder fees or other additional costs, but merely serves as a friendly reminder of the invoice.
Alternatively, the first reminder can be sent immediately . However, this could create a rather negative impression, so if the relationship with the defaulting customer is good or at least neutral, it is advisable to write a polite reminder first.
After a first reminder, further reminders can be sent. Then it has to be decided whether reminder fees and default interest will be waived as an act of goodwill or whether these will be claimed in full.
What happens if no payment deadline is given?
Unless otherwise agreed, the statutory period of 30 days applies. However, especially for private customers, this should definitely be stated on the invoice. It is also strongly recommended for business customers. If no payment deadline is given, this can lead to confusion for the customer. Some may subsequently pay immediately, others take a particularly long time – and may then be surprised by a payment reminder or even a reminder.
In order to prevent this unpleasant experience, a specific payment period should be stated on every invoice. Mentioning a deadline is neither intrusive nor impolite, but simply clear, neutral communication – after all, customers also agree on specific delivery dates.
Shorten the payment period with a discount
All accounting companies want to get their money as soon as possible. From the customer’s point of view, however, the opposite is true and the aim is to pay the outstanding amount as late as possible. Anyone who wants to practice active cash management and want to ensure that bills are paid as quickly as possible can set targeted incentives.
The simplest and most common method is to offer discounts. A cash discount is a small discount, typically one to three percent of the total amount. The customer may deduct this discount from the invoice amount if the amount is paid within a certain period of time. With this additional incentive, which is usually clearly worthwhile from the customer’s point of view, the accounting company receives the outstanding claim paid more quickly. The amount is available earlier and can be actively used again, while the risk of payment defaults is reduced.
Conclusion
According to wholevehicles, the term of payment is regulated by law, but should nevertheless be specified specifically on every invoice in order to avoid misunderstandings. It can be agreed to be shorter or longer than legally stipulated, provided that the agreement is made jointly with the customer and a different period is not simply mentioned on the invoice.
If a period expires without receipt of payment, an optional payment reminder and then reminders follow, which can be accompanied by additional costs such as dunning fees and default interest. The active dunning system helps to ensure that invoices are paid quickly.
An alternative way to keep outstanding receivables low and to minimize the risk of payment defaults is to offer discounts, which motivate customers to pay bills as quickly as possible.
