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Key takeaways
- Payment terms state when payment is due and how, for example net 30, due on receipt or 50 percent in advance and the balance on delivery.
- Always state what starts the clock: invoice date, receipt of goods or receipt of a correct invoice.
- In India, payments to micro and small enterprises must be made within the limits of section 15 of the MSMED Act, 45 days at most with a written agreement and 15 days without, or the buyer loses the tax deduction until it pays.
- Longer terms help the buyer's cash and hurt small suppliers. Shorter terms often earn a better price.
Free PDF and Excel: Payment terms comparison sheet and clause wording. Get it below
What payment terms are
Payment terms are the conditions in a sale that say when the buyer must pay, how, and what happens if it pays early or late.
They live in the contract, the purchase order or the invoice, and when all three disagree the argument starts. The most common phrasing is a number of days counted from a start event. Net 30 means the full amount is due thirty days after the start date. Our pages on net 30, net 60, net 45, net 90, net 15, due on receipt and 2/10 net 30 go into each. This page helps you choose between them.
A hospital supplies office buys cleaning supplies. The vendor's default term is net 30 from invoice date. The invoice goes to the wrong department and arrives on day 12. Finance now has 18 days left to approve and pay.
The hospital changes the contract: net 30 from the date a correct invoice is received. The supplier agrees in exchange for a promise to pay on the due date. Late payments fall by half.
Common types
| Term | Meaning | Who it favours |
|---|---|---|
| Due on receipt | Pay as soon as the invoice arrives | Seller |
| Net 15 or net 30 | Pay within 15 or 30 days | Balanced, with 30 the usual |
| Net 45, 60 or 90 | Longer credit | Buyer |
| 2/10 net 30 | 2 percent discount if paid within 10 days, otherwise full in 30 | Buyer with spare cash, seller wanting speed |
| Cash in advance | Pay before shipment | Seller |
| Milestone | Part payments tied to stages | Both, for projects |
| End of month | Due at the end of the month after the invoice month | Buyer |
Free PDF and Excel
Payment terms comparison sheet and clause wording
A sheet to compare payment terms by cash impact, plus clause wording you can adapt.
- Terms comparison table
- Clause wording checklist
- Supplier size and statutory limits note
- Excel tool that works out cash cost of each term
Work out a due date
Pick the date the clock starts and the term. The tool counts calendar days. Contracts sometimes count business days, so say which.
Indian rule for micro and small suppliers
Section 15 of the MSMED Act sets the limits: 15 days after acceptance of the goods or services if there is no written agreement, and never more than 45 days even if the agreement says longer. Section 43B(h) of the Income-tax Act ties a deduction to payment within those limits. A buyer that pays a micro or small enterprise supplier late can claim the expense only in the year it actually pays, according to the ITAT Online summary, and the usual relief for payments made by the return due date does not apply to this clause. It applies where the supplier has filed a memorandum under the MSMED Act and does not cover medium enterprises. Ask your adviser how the Income-tax Act 2025 carries the rule.
Last checked: 19 October 2026. Checked against a published digest of section 43B(h) and section 15 of the MSMED Act. Other countries, including the EU member states and the UK, have their own statutory late-payment rules. Ask your adviser.
Wording that avoids arguments
- Name the start event: invoice date, receipt of goods or receipt of a correct invoice.
- Say calendar days or business days.
- Say how payment is made: bank transfer to the account on the vendor master.
- State the late fee or interest, if any.
- State what happens to a disputed invoice: undisputed part is paid on time.
- Make the purchase order, the contract and the invoice carry the same wording.
- The clock start is named.
- Days are calendar or business, and it says which.
- Early payment discount, if any, is stated.
- Late fee or interest is stated.
- Disputed invoice handling is written.
- Statutory limits for small suppliers were checked.
- Terms match the purchase order.
Frequently asked questions
What does net 30 mean?
The full invoice amount is due 30 days after the start date, which is usually the invoice date unless the contract says otherwise.
What is the most common payment term?
Net 30 is the most common, with net 60 and net 45 used by larger buyers and shorter terms for new suppliers.
Can a buyer unilaterally extend payment terms?
Only if the contract allows it. For small suppliers, statutory limits may apply regardless of what the buyer wants.
What is an early payment discount?
A reduction for paying before the due date, such as 2 percent if paid in 10 days. See the 2/10 net 30 page for the cost.
Where should payment terms be written?
In the contract, and repeated on the purchase order and the invoice so all three agree.