Payment terms

Definition of Payment Terms

Payment terms are the agreed conditions between a seller and a buyer that determine when and how an invoice should be paid. They have a direct impact on a company's liquidity and cash flow. These terms are established at the start of a contract and appear on the invoice—typically including a payment deadline, potential discounts for early payment, and interest for late payment. In international trade, payment terms are not just a practical matter; they are a signal of trust between partners.

Common Types of Payment Terms

The most common payment terms internationally are "Net 14," "Net 30," and "Net 60." "Net" means that the full amount must be paid within the specified number of days from the invoice date. Additionally, there are terms such as "CIA" (Cash in Advance), "COD" (Cash on Delivery), and "EOM" (End of Month). Some companies offer cash discounts—for example, "2/10 Net 30," which means a 2% discount is granted if paid within 10 days; otherwise, the full amount is due in 30 days.

Legislation and Rules

In the EU, B2B payment terms are generally capped at 60 days unless otherwise agreed, though 30 days is the standard default. Under the Late Payment Directive, creditors are entitled to claim interest and compensation for debt recovery costs if payments are late. For public sector authorities, the 30-day payment rule is strictly mandatory.