Payment Terms

Overview#

Payment terms define when invoices are due and whether early payment discounts apply. They are a critical component of accounts receivable (AR) and accounts payable (AP) management, enabling standardized payment expectations, automated due date calculation, and cash flow optimization.

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How Payment Terms Work#

Without Payment Terms#

An invoice is issued for $10,000 -- but when is it due? Should the customer get a discount for paying early?

With Payment Terms#

Key Benefits#

1. Standardized terms -- Consistent payment expectations across all transactions
2. Automated due dates -- The system calculates due dates automatically from invoice date
3. Early payment incentives -- Encourage faster payment with discounts
4. Cash flow management -- Predict when payments will be received or due
5. Organization-wide consistency -- Same terms available for all entities

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Payment Term Structure#

Each payment term has these properties:

Naming Conventions#

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Pre-Seeded Payment Terms#

The system comes with 17 standard payment terms covering most business needs.

Immediate Payment Terms#

Standard Net Terms#

Terms with Early Payment Discounts#

End of Month Terms#

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Early Payment Discounts#

Early payment discounts incentivize customers to pay faster, improving your cash flow.

How Discounts Work#

Consider an invoice for $10,000 with terms NET_30_2_10 (Net 30, 2% discount if paid within 10 days):

Invoice Date: January 1

|-- Discount Period --|-- Regular Period --|
Jan 1              Jan 10              Jan 30
Invoice Date       Discount Ends       Due Date

Pay by Jan 10: $9,800 (2% savings = $200)
Pay after Jan 10: $10,000 (full amount)

Common Discount Structures#

Why take the discount? The annualized return on early payment is typically much higher than borrowing costs, making it financially attractive to pay early even if you need to borrow to do so.

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Managing Payment Terms#

Creating Custom Terms#

You can create custom payment terms by telling the AI assistant:

"Create a payment term NET_30_5_7: Net 30 with 5% discount if paid within 7 days"

The system validates:

• Code is unique and auto-converted to uppercase
• Days until due is zero or positive
• Discount percentage is between 0 and 100

Updating Terms#

Existing terms can be updated (description, days, discount settings). The code itself cannot be changed since it serves as the unique identifier.

Deactivating Terms#

Payment terms are never deleted -- they are deactivated (soft delete) to preserve historical records.

When deactivated, a term is:

• Hidden from payment term selection dropdowns
• Hidden from new invoice creation
• Hidden from active term listings

But still visible in:

• Existing customer and vendor records
• Historical invoices
• Audit logs and reports
• Full term listings (without active filter)

To reactivate a term, simply update its active status back to true.

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Where Payment Terms Are Used#

Payment terms are universal reference data -- the same definitions apply across all entities in your organization. They are assigned to:

• Customers -- Default payment terms for AR invoices
• Vendors -- Default payment terms for AP invoices
• Individual invoices -- Can override the customer/vendor default

When an invoice is created, the system automatically calculates the due date based on the invoice date and the assigned payment term's days-until-due value.

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Common Use Cases#

Standard B2B Terms#

Most businesses use NET_30 as their default. Larger or established customers may receive NET_60.

Cash Flow Improvement#

Offer NET_30_2_10 to incentivize early payment. The 2% discount costs less than the value of receiving cash 20 days sooner.

Retail / E-commerce#

Use DUE_ON_RECEIPT or COD for immediate payment requirements.

Vendor Negotiations#

Configure NET_60 or NET_90 for supplier terms where you have negotiating leverage.

Industry-Specific#

Create custom terms like NET_30_PROGRESS for construction milestones or NET_30_GOV for government contracts.

Seasonal#

Offer extended terms (NET_90_SEASONAL) during slow seasons to maintain customer relationships.

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Best Practices#

1. Deactivate, never delete -- Always soft-delete terms to preserve audit history
2. Check usage before deactivating -- Review how many customers/vendors use a term
3. Migrate before deactivating -- Update customers to new terms first
4. Standardize codes -- Use consistent naming (NET_X, NET_X_Y_Z)
5. Review discount economics -- Ensure offered discounts make financial sense for your cash flow position