Payment terms

Payment terms explained, with an early payment discount calculator

A plain-English guide to invoice payment terms: what “Net 30” and “EOM” mean, how to pick terms for your business, and what an early-payment discount like “2/10 net 30” really costs you.

✓ Net 7 to Net 90
✓ EOM
✓ 2/10 net 30
✓ Discount calculator

Your numbers

Invoice amount

Currency

Discount

%

If paid within (days)

Otherwise full payment due in (days)

Result

Annualised cost of the discount

–

How to use the early payment discount calculator

Enter the invoice amount. Use the amount before any discount.
Enter the discount. For “2/10 net 30”, the discount is 2% and the discount days are 10.
Enter the full payment days. For “2/10 net 30”, the full amount is due at 30 days.
Read the result. You get the discount amount, the discounted payment and the annualised cost of offering it.
Decide if the discount is worth offering. Compare the annual cost with the interest you would pay on a loan or overdraft.

What payment terms are

Payment terms say when and how a customer has to pay an invoice. They appear on the invoice and in the contract or quote. Clear terms matter because they decide when your money arrives, when you can charge late fees, and what you can say in a reminder or claim.

A complete set of terms covers the due date or period, the accepted payment methods, any deposit or milestone payments, any early payment discount, and any late payment interest or fee. You can work out exact due dates with the invoice due date calculator.

Common payment terms

Term	What it means	Typical use
Due on receipt	Pay as soon as the invoice is received	Consumers, small jobs, new clients
Net 7 / Net 14	Pay within 7 or 14 days of the invoice date	Freelancers and small suppliers
Net 30	Pay within 30 days	The most common B2B term
Net 60 / Net 90	Pay within 60 or 90 days	Large corporate or public customers
EOM	Pay by the end of the month of the invoice	Trade accounts
EOM + 30 (Net 30 EOM)	Pay 30 days after the end of the invoice month	Trade and wholesale
2/10 net 30	2% discount if paid within 10 days, otherwise full amount in 30 days	Suppliers who want faster cash
COD / CIA	Cash on delivery or cash in advance	New or risky customers, goods
Milestone / deposit	Payments tied to stages of a project	Projects, construction, creative work

How to choose payment terms

Know your cash flow. If you pay your own bills in 14 days, a Net 60 customer means you finance them.
Match the risk. New customers might pay a deposit or Net 7. Established customers may get Net 30.
Follow your industry. Some sectors have customary terms.
Check the law. The EU Late Payment Directive expects B2B payments within 60 days unless agreed otherwise and not grossly unfair. The UK’s Late Payment Act gives interest rights. Public bodies often have shorter limits. Check the rules for your country.
Put it in writing. Terms on an invoice that the customer never agreed to are weaker than terms in a signed quote or contract.

Early payment discounts: is “2/10 net 30” worth it?

A discount such as 2/10 net 30 looks small, but the annualised cost is high. If a customer pays on day 10 instead of day 30, you give up 2% to receive your money 20 days earlier. Annualised, that is about 37%:

annual cost = d ÷ (1 − d) × 365 ÷ (net days − discount days), with d = 0.02: 0.0204 × 365 ÷ 20 ≈ 37.2%.

Such a discount is worth offering only if your alternative cost of money, for example overdraft interest, is higher or you need the cash urgently. A discount is more attractive if your margin is high. A customer’s side of the same maths is that taking the discount is a good return if they can use their money elsewhere at less than the figure. Use the calculator on this page to test different discounts.

Accounting for discounts

The tax treatment of settlement discounts depends on the country and the structure of the offer. Under UK VAT rules, for example, the VAT is based on the discounted amount if the discount is on the invoice and the customer takes it. Check with your tax authority or accountant.

Late payment: fees and interest

Terms should say what happens if a customer pays late. In the UK, the Late Payment Act gives B2B suppliers statutory interest of 8% above the Bank of England reference rate plus fixed costs; see the UK late payment interest calculator. In the EU, the directive on late payment gives similar rights, with the details set by each country. In the US and many other places, late fees must usually be agreed in a contract or invoice terms and must be reasonable; some states limit interest rates.

A simple clause could read: “Invoices are payable within 30 days. Late payments may incur interest at a rate permitted by law.” Check the wording for your jurisdiction. See also late fees and interest on invoices.

Glossary

Net: The full invoice amount after other adjustments, due by the stated date.
EOM: End of month.
Settlement discount: A discount for paying early.
Deposit: A payment made before work starts.
Milestone payment: A payment tied to a stage of a project.
COD: Cash on delivery.

Frequently asked questions

What does Net 30 mean?

Payment is due in full 30 days after the invoice date. “Net” means the whole amount, after any other adjustments.

What does EOM mean in payment terms?

End of month. The invoice is due at the end of the month in which it is dated, or if “EOM + 30”, 30 days after that.

What does 2/10 net 30 mean?

The customer can take a 2% discount if they pay within 10 days. Otherwise the full amount is due within 30 days.

Which payment terms are best for freelancers?

Many freelancers use Net 14 or Net 7, often with a deposit on new projects. Longer terms are more common with large clients. Choose what your cash flow can afford.

What is the difference between Net 30 and due on receipt?

Net 30 gives 30 days. Due on receipt means payment is expected immediately on receiving the invoice, though customers often take a few days.

Can I charge a late payment fee?

Often yes, if the terms say so and the fee is allowed by local law. In the UK, B2B statutory interest applies automatically. Check the rules where you operate.

Is an early payment discount a good idea?

It can speed up cash, but the annualised cost is high. A 2% discount for paying 20 days early costs about 37% a year. Compare it with your cost of borrowing.

Are there legal limits on payment terms?

In some places, yes. EU states implement a 60-day general limit for B2B terms unless agreed otherwise and not grossly unfair; public authority terms are often shorter. Check local rules.

Should I ask for a deposit?

For larger or custom jobs and new clients, yes. A deposit reduces risk and shows commitment. State the deposit on the quote and on the invoices.

Do payment terms need to be on every invoice?

It is good practice. State the due date, the payment method and any late payment terms on every invoice so nothing is ambiguous.