GlossaryKind of term: Cost and economicsPayment terms
What are payment terms?
Payment terms set the period within which the customer must pay after invoice or delivery, sometimes with a deposit or staged payments.
They end on the latest payment date. A deposit is paid up front; staged payments are tied to partial deliveries or milestones. They appear in your quote and terms of sale, but large customers often set their own terms in their purchasing conditions. Which terms apply follows from what was agreed.
What does the law say about payment terms?
Within the EU, the Late Payment Directive (2011/7/EU) sets the rules for commercial transactions between businesses, implemented in national law; in the Netherlands in article 6:119a of the Civil Code. If no term is agreed, the basic rule is that statutory interest is due without a reminder from 30 days after receipt of the invoice; in practice that works as the default term. A term of more than 60 days is only valid if expressly agreed and not grossly unfair to the supplier. Since 1 January 2021, Dutch law also requires a large company to pay an SME supplier within 30 days; a longer agreed term does not hold. National rules differ in detail; the law named in your contract decides.
How do payment terms work in practice?
On an order with costly stock material and subcontracted finishing, you often pay for the material and the subcontractor long before the customer pays you. Between purchase and money in your account sit the order's lead time and the payment term. What that costs depends on the order value, the number of days and what financing costs you. On a large order, a long lead time or a new customer, a deposit, payment per partial delivery or a financing allowance can cover it.
What are payment terms often confused with?
Payment terms are not lead time: lead time runs to delivery, the payment term usually starts at invoice or delivery. Nor are they delivery terms: who carries transport and risk is set by the Incoterm, when payment is due by the payment agreement.
Frequently asked questions
What payment term applies if nothing was agreed?
Within the EU, the Late Payment Directive makes statutory interest due between businesses from 30 days after receipt of the invoice, which works as the default term. Each country implements it in its own law; check the law your contract names.
When should I ask for a deposit?
With costly material, a long lead time, a new customer or a part you cannot sell elsewhere. The deposit then covers the material and the risk of the order being withdrawn halfway.