The best invoice terms to get you paid faster
We compared different invoice terms to see what impact they had on likelihood and time to get paid.
Recently, we looked at our data to see if we could extract some insights that might really help FreshBooks customers get paid faster. Our question: how does the wording of the “terms” section of an invoice impact the number of days it takes you to get paid and the percent of invoices you actually collect on.
In the graph above we’ve mapped two key things gleaned from the data of our paying FreshBooks users. In the bar graph, we’ve looked at how long it takes to get paid based on various wordings used in the Terms field on an invoice (e.g. “Please pay within 21 days” or “Payment terms: net 30. Interest accrued at 1.5% per month thereafter”). On this chart of days to pay vs. terms used, the shorter the bar, the better.
The second thing we’ve charted is the percentage of invoices actually paid vs. terms used (the data points in the top section of the graph). On this scale, higher is better. Another way of thinking about this is: the wider the gap between the bar and the data point above it, the better the wording (in general, although there are a handful of exceptions).
Be Polite
The first thing we noticed in the data is that being polite really matters! A simple “please pay your invoice within” or “thank you for your business” can increase the percentage of invoices that are paid by more than 5 per cent! That could easily equate to thousands of dollars per year. Not only that, but politeness clearly gets you paid faster.
21 Days to Pay
The second thing that jumps out at us is that using the word “days” as opposed to “net” gets you paid more often and faster. While the words “net 30” or similar may make sense to most business owners, perhaps that kind of wording is not as clear to less business-savvy clients.
Another point we found interesting here is that most people seem to interpret “upon receipt” as “whenever you feel like it”. It’s as if they receive an invoice with the words “payable upon receipt” and immediately dump it into the “whenever” pile. Using specific terms such as “21 days” seems to focus the client’s mind around a specific timeframe and will actually get you paid faster than asking for immediate payment.
Interest On Late Payments
The final thing we learned from this chart is that threatening your clients with interest on late payments does two things. It gets you paid slower, but it also seems to ensure a higher percentage of invoices will get paid. Perhaps when your clients see an interest rate it gives them a mental excuse to prioritize other debt payments like credit cards versus your invoice, but at the end of the day they don’t want to push it too far, so they end up paying. In their minds there is always a chance that you won’t apply the extra 1.5% if they are “only” a month late.
So what does this exercise tell us about the optimum payment terms for your business?
We think it’s worth taking a close look at your invoice terms and perhaps changing them to something like one of these two options:
“Thank you; we really appreciate your business. Please send payment within 21 days of receiving this invoice.”
It’s polite, and includes the magical “21 days” formula.
Or, if you run a slim-margin shop where every dime counts, but cash flow isn’t an issue:
“Thank you for your business. We do expect payment within 21 days, so please process this invoice within that time. There will be a 1.5% interest charge per month on late invoices.”
Review the payment terms you’re using on your invoices (you can change the terms and set default terms when editing any invoice). Play around with the wording based on our findings here and let us know if it makes a difference.
Of course, with all this said, we know that still the very best thing you can do to get paid more often and faster is delight your customers with a quality product every time. That, plus decent manners can make all the difference.
sends more invoices than there are 
9:34 am
Great post Zach. Question, does this sample include all types of payments, ie. Online with a credit card, PayPal and Check?
It would be very cool to see the results broken down by payment type, or by industry or by region. Geez, I guess you could go on and on
Thanks for the analysis,
Levi
11:12 am
Yup, all types of payment Levi. We could break it out, but it would have to be worth it, because each time you break something out you lose volume which increases the sampling error.
11:56 am
Here’s another thought about mentioning interest. I suspect people pay later *not* because of a chance that you won’t apply the interest, but because they’re paying for the privilege of being late. If you ask for payment within a reasonable amount of time, and they take longer, they’re cheating you. You kept your end of the bargain, and they haven’t. If you charge them interest for paying late, it’s no longer a question of courtesy or fairness, it’s a cost-benefit analysis. Maybe paying later is worth the 1.5%.
2:27 pm
I previously had requested a method of providing discounts for faster payment. I still think this is the optimal route to get paid faster.
It would be nice if a set of terms could be pre-defined to allow for such things. The invoice would be shown at full price with a discount schedule below.
In business, this used to be fairly common to offer a discount for fast payment. IE: 2/10, net 30 is a 2% discount if paid in 10 days, and net due within 30 days.
I would suggest taking it a step further to allow for multiple discounts: 10/5, 5/15, net 30.
10:34 am
Thanks for these optimal tips. Its always helpful to know ways to communicate better with your clients, especially when it comes to being paid for the hard work you do.
9:52 pm
in response to Casey’s suggestion of discounts for prompt payment: it’s excellent in theory, but one should be wary that you open yourself up to ‘interpretation’ by the client of how early they are paying. I have experienced — as have others I know — clients who do NOT pay within the early timeframe but still treat themselves to the lovely discount. They figure (usually correctly) that I’m not going to re-invoice for that extra 2% they shorted me. And the bigger the client, the more you can count on it happening! designer beware, haha!
4:02 am
[...] the original post here: The Best Invoice Payment Terms to Help You Get Paid Faster and … Share and [...]
6:13 pm
If you have discovered this is the case, why isn’t there a way to tie your invoice terms (net 21, net 30, monthly, etc.) in with the automatic late reminders? Even though you found out that a specific number of days is best, you still treat all of your invoices as “payable upon receipt” which you just proved doesn’t work best! I have some clients who are on a net 30 and some who are on a monthly (due the first of the month following the work) and it would be nice to have the automatic reminders be able to be set independently.
11:48 am
Is there a way to automatically add late fees to late invoices in Freshbooks?
12:54 am
I still dont have problmes to get payed, I receive 50% starting the project, and the 50% when I finish the project, wich means around 4 weeks later,
9:27 pm
This will seem like an elementary question, but your feedback would be appreciated! A senior assoicate in my dept. has convinced our Controller that invoice due dates should never be changed or extended. She claims that by changing the due date you are changing A/R history and this would be a violation for our auditors. If the situation warrants a change in due date and we document in writing why the change was made isn’t this acceptable? Thanks!
8:48 am
@Christopher Redhage:
Sorry dude, not at the moment.
@Theresa:
Sounds like a question for an accountant or lawyer. It doesn’t sound like that should be a problem, but I would check with a professional.
6:25 am
[...] It indicated that asking for payment within 21 days yielded the fastest payment. For a young, cash-hungry business, this is very important to know. They also found that adding a late (or liquidated damage) fee of 1.5% per month increased the time to get paid, but resulted in a higher percentage of invoices paid. So, I suggest you go read the post, and see their two examples of the best terms to use, one if you need every penny you can get, and another if you just need fast payment. [...]
3:29 am
I recently started offering discounts (5%) for payments within 5 business days as an experiment. Of the invoices I offered the discount to, all paid by day 5. Of the invoices not offered the discount, they paid in approximately 20 days, with some holding out until day 30. While I was sure to point out the option to the client to receive an additional discount, they had to contact me to have the discount applied since there is no feature to do so at present.
I also have a hefty 10% late payment fee (not interest) applied to invoices if not paid. I am sometimes lenient on that fee if the client contacts me, but it has proven to work as well.
I still think it would be great to be able to set the terms to apply discounts or penalties.
1:45 pm
Is the following term correct:
Payment due on or before XX/XX/XXXX
9:20 am
Yes, Hugo – that wording would work, although perhaps you should consider tweaking it, based on the analysis above, to say something like:
“Thank you; we really appreciate your business. Please note that payment is due on or before XX/XX/XXXX.”
6:04 pm
[...] blog post from the developers of the FreshBooks online business accounting system demonstrates audience focus [...]
11:44 am
Why is it I put 10% will be added to invoices not paid within 14 days and hear nothing, then magically when a reminder is sent with the 10% added the customer rings you not to apologise for not paying you but to query why you have added 10%!!
3:10 am
I am relatively new to freelancing as a graphic and web designer. I appreciate forums like this where I can hopefully learn from others experience. Cheers!
3:56 pm
Thank you for this clear explanation of terms in invoicing. We’ve been in business for a long time, but until I downloaded a brand new invoice system, I had always left the terms at net 30 which was always too long for such a small company as ours. I’m changing my new template to 21 days which will be of great benefit to us. Thank you for such succinct and valuable information.
1:08 pm
Thanks for sharing the research, results, and nuances of your research. I like the idea of including a specific due date in the payment language (helps avoid misunderstandings and aids the calendar-challenged).
One comment: The date format “XX/XX/XXXX” is clear to most native English speakers/readers, but international date formats vary. A more formal expression (i.e., January 11, 2011) would avoid any confusion.
4:03 pm
i have a small business, as I tell my clients that only cheks are accepted.
6:21 am
[...] invoice terms to get you paid faster. Here are the findings from the study. (For the full report click here)Be polite A simple “please pay your invoice within” or “thank you for your business” can [...]
8:44 am
[...] Have you ever given any thought to your terms? You might be surprised just how much they can determine how fast you get paid. In fact, the Market Intelligence team at FreshBooks studied its users’ payment terms in order to find the best invoice terms to get you paid faster. Here are the findings from the study. (For the full report click here) [...]
7:22 am
There are a number of solutions to this problem.
One is that we offer a no-win no-fee legal solution where we will take to trial businesses who pay you late.
The average we recover is now of the order of £20000 .This is made up of the fact that you are due recover at least 8.5% interest and damages of up to £100 on every single invoice that was paid late. Even if it was paid .Your filing cabinets are full of this money that we could recover and you could treat this as new capital in your business
If you would like to know more please contact me james@businessdisputemediation.co.uk in confidence
9:09 am
I can relate to Jayne Bigsby’s comment (Sept 3 2010) … we too have a 10% Late Payment Fee and it is only when receiving a Statement with the LPF applied that the customer calls to query the ‘extra’ amount requested. We have the option to waive the LPF when applying the payment (and usually do so if the customer calls) and have found that it sometimes does not matter how many times you call them to discuss the payment, it is the Statement with the LPF applied that prompts them to pay. Interestingly we often receive the payment of the original invoice amount a very short time after Statements are sent.
6:58 am
In the UK you could do worse than look at our website which offers a one stop shop for late invoice payment .
Most lawyers and debt collecters are still not understanding this very important legislation and do not see that a lot of businesses have many invoices paid late by a few of their clients and this can easily mount up to 6 figures which can be life saver for small business. Plus as most of it damages it ought to be tax free
With our profound understanding of this market your clients may find a new source of capital in difficult times
Regards
James
2:40 pm
Enjoyed reading through your posts … is it okay to post the following payment terms …
All prices listed have been discounted by 3% for payments received by cheque.
A new invoice will be issued for payments made by any other method.
4:15 pm
pukata invoice ekai, katata invoice dekai. meka adi sinhala pukaaa kiyapu kaviyak.pukkonta suddo dena pukekuta meka translate karanna puluwan pukalis bashawata.meka kiyanne pukaaa.issara kiyala tiyennet pukaaa tamai.eya punde puka.
1:26 am
[...] Have you ever given any thought to your terms? You might be surprised just how much they can determine how fast you get paid. In fact, the Market Intelligence team at FreshBooks studied its users’ payment terms in order to find the best invoice terms to get you paid faster. Here are the findings from the study. (For the full report click here) [...]
1:59 pm
Thanks for all the useful comments, all very helpful! i have used the 21 days, lets hope it works!
1:12 pm
[...] blog post from the developers of the FreshBooks online business accounting system demonstrates audience focus [...]
1:30 pm
[...] Have you ever given any thought to your terms? You might be surprised just how much they can determine how fast you get paid. In fact, the Market Intelligence team at FreshBooks studied its users’ payment terms in order to find the best invoice terms to get you paid faster. Here are the findings from the study. (For the full report click here) [...]
2:30 pm
[...] receivable, prepare to wait a long time for payment. Freshbooks published some excellent data on how long it takes to get paid… the summary is that it will take a lot longer than you think. On average, about 30 days, [...]
4:10 pm
Great information and tips here! I’ll be using these for my future clients. Thanks for sharing.
8:46 am
I do web development work for clients. Most clients pay more or less on time, but there is a troubling group of clients who demand the most yet are the most unwilling to pay. An example: I spent about 100 hours on a project (at the expense of other clients and other income) and ended up getting paid only $500 because the client thought he had the right to make an infinte number of changes while not having to pay extra for them. Not only did I receive $500 for 100 hours of work, the payment was 4 months late.
Some clients, you just need to avoid.
8:48 am
Oh, I forgot to mention the other nightmare project. That was worse, with about 300 hours of work for $900 pay.
I still haven’t received my payment…
7:14 am
You don’t go to a supermarket, pick something off the shelf and walk out, then come back in a month to pay for it. That’s called theft.
It’s simple really. If you do web development work either:
1. Don’t hand over the website until payment.
2. If you have already handed a part of it over, do not do any further work until you are paid in full for the part already completed.
3. If you are hosting the website, take it offline pending payment.
If you do the work, then you should get paid. The fact that some clients (not most, fortunately) can’t get this wrapped around their heads is a bewildering.
7:56 pm
[...] All invoices have payment terms listed on the invoice (or at least they should). Have you ever given any thought to your terms? You might be surprised just how much they can determine how fast you get paid. In fact, the Market Intelligence team at FreshBooks studied its users’ payment terms in order to find the best invoice terms to get you paid faster. Here are the findings from the study. (For the full report click here) [...]
3:06 pm
[...] daily solvency, poor credit history will affect your ability to get credit in the future. In the society in which we live, we all see from day to day people who have possessions which we wou…as a way of raising the money to fund their purchases. Of course, there are other reasons for taking [...]
12:36 pm
if your invoice says “pay in 21 days…….there is a 1.5 interest on late payments”, but the company you are invoicing policy is net60, which one stands?
would the company actually go with your terms or stick with theirs, completely ignoring your 1.5% interest charge
10:10 am
I’d love to see an update to this based on the last year and a half of new data! And by sector since you’re gathering that data now too.
2:20 pm
Interesting study, and good to know that it is good to avoid saying an invoice is “payable upon receipt”, etc. Thanks!
Would also recommend keeping on friendly terms with the customer as far as is feasible.
8:02 am
How did you control for variables, such as the customer’s cash flow, aside from the wording of your invoices? Or did you? I wonder at this conclusion!
10:11 am
[...] The best invoice terms to get you paid faster. Recently, we looked at our data to see if we could extract some insights that might really help FreshBooks customers get paid faster. Our question: how does the wording of the “terms” section of an invoice impact the number of days it takes you to get paid and the percent of invoices you actually collect on. [...]
12:45 pm
I included this post in my latest Freelancing Weekly: http://freelancingweekly.com/issue-7
12:14 pm
Colin Putney (third comment) nailed it. People see fines as a price for being late – this was first documented by Gneezy Rustichini in 2004 and has been substantiated by 100s of scientific studies since. It’s best to ask for quick payment in friendly english.
http://www.jstor.org/pss/10.1086/468061