Payment Terms
Definition
Payment terms are the written rules that define when and how a customer must pay for services rendered.
What Payment Terms Means for Your Business
What it means
Payment terms spell out the due date, acceptable payment methods, late fees, and any early-pay discounts. Common terms include Due on Receipt, Net 15, Net 30, and Net 60.
Why it matters
Payment terms are not boilerplate. They directly control cash flow, DSO, and bad debt risk. The right terms for a residential call are different from the right terms for a commercial job.
How contractors use it
Shops set default terms per customer type: Due on Receipt for residential, Net 15 to 30 for commercial. Terms are printed on every estimate, contract, and invoice.
Real-World Example
A commercial mechanical contractor tightened default terms from Net 45 to Net 30 and added a 1.5% monthly late fee. DSO dropped from 52 to 38 days, freeing $180,000 in working capital.
Related Terms
Net 30
Net 30 is a payment term that gives the customer 30 calendar days from the invoice date to pay the full amount due.
Invoice
An invoice is a billing document that lists the work performed, parts used, and total amount due from the customer.
Days Sales Outstanding
Days sales outstanding, or DSO, is the average number of days it takes a business to collect payment after an invoice has been issued.
Accounts Receivable
Accounts receivable is the total amount of money owed to a business by customers for services already delivered but not yet paid.
Deposit Invoice
A deposit invoice is an initial bill that collects a portion of the total job cost before work begins, typically to cover materials and secure the customer's commitment.
Put This Into Practice with Free Software
Kaldr Tech handles payment terms and everything else you need to run your shop. $0/month, 3.5% + 30¢ per transaction.