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Demystifying your invoicing terms (Part 1 of 2)

7 December 2017 / By Desley Grant

Just because you’re in business, that doesn’t automatically make you an expert in accounting terms, and the terms that are used on an invoice aren’t always that intuitive or easy to understand.

Knowing what you’re dealing with in an invoice, whether it be one that you’re issuing or one that you’re paying, can make things much easier and is a great first step to getting your cash flow sorted.

In this first blog of a two-part series, we’ll demystify some common invoice payment terms. Then in our next blog, part 2, we’ll extend this topic and look more into the effect each term has on your customers, and give you some advice on how to write your invoices so you get paid quickly, more often!

For more detail about the art of invoicing, you can check out Tip #7 of our eBook 10 Tips for Busy Business Owners, where we cover how to design invoicing systems for prompt payment.

Common terms you’ll see on invoices

Net30: This means simply, “Pay the net amount of the invoice in 30 days.” This is one of the most commonly used terms, even though it’s usually not necessary to wait that long for your money. The term is a holdover from an earlier era when communications were slower and on-line payment systems didn’t exist. People still use it, but it’s like giving your customer a 30 day interest-free loan.

2/10 Net 30: This term offers a discount of two per cent if the customer pays in 10 days. Otherwise the net amount is due in 30 days, same as above.

EOM: This is an abbreviation for “End of Month.” This works for businesses that want a large cash influx once a month. It’s trickier if you have bills to pay throughout the month and want cash coming in steadily to cover them. If you send out invoices throughout the month, some customers will have more time to pay than others.

15 MFI: This stands for 15th of the month following the invoice date.

Upon receipt: This term means you want the customer to pay you right away. There’s a risk your customers may ignore (or not realise) the urgency of this term and set the invoice aside.

These are the most common terms that our customer often tell us can be a little confusing. Now that we’ve demystified invoice terms for you, remember this post and come back to it when you need to check the details of what an invoice requires from you.

Remember, knowledge is power and knowing what you’re dealing with gives you the power to sort out your cash-flow more easily. Don’t forget to check back for our next post, when we give you some advice on how to write your invoices so you get paid quickly, more often!

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