⏱ 4 min reading
As a business owner, one of the most important things is that people take you seriously and that you have a certain level of professionalism. This can take many different forms, and especially in the beginning, you will most likely be wearing different hats in your business. We can imagine there are some things you’d rather not focus on, but sometimes just learning a few basic things on a certain topic can help tremendously with how professional you come across. Familiarizing yourself with some invoicing terms definitely belongs on the list. Not only is it important to know what your money is doing, but when it comes to your invoices and people are throwing around terms and you have no clue what it means, this is not a good sign. But worry no more! The first step is just reading the 8 invoicing terms we’ve put together for you in this blog.
1. PIA – Payment in Advance
We’ll start easy, as this one precisely means what it says. It can be a real struggle to get paid. When you have a policy of payment in advance, however, this means the goods or service will not be delivered unless the payment has taken place.
2. Immediate payment
Another easy one. Immediate payment means that the payment should be made when the invoice is received.
3. Net 30
Net 30 means that there are 30 days until the invoice needs to be paid. It’s essentially an alternative for just writing out that ‘Payment should be made within 30 days’. It doesn’t always have to be Net 30. Depending on which industry you’re in and what type of business you have, you may have different time frames for which an invoice needs to be paid. Essentially, you can place any number that’s suitable for you after ‘Net’ and this means the invoice needs to be paid within the specified amount that comes after Net.
4. 2/10 Net 30
In the last one, we talked about Net 30. If these are your standard payment terms and you want to make sure that people pay even before that time, there’s a little addition you can make to it. Rather than just having the term be Net 30, you can make it for example 2/10 Net 30. This would mean that in case your customer pays within 10 days of receiving the invoice, they will need to pay 2% less. Eventually, they will still need to pay within 30 days, but if they pay within the first 10 days, you will allow them a discount which means you’re essentially rewarding them for paying early. The construction doesn’t necessarily have to be 2/10 Net 30 but can be anything you would like it to be.
5. Interest invoice
An interest invoice means the invoice has a penalty of interest charges when there are delays in payment. For this is it vital that you let your customers know beforehand that there will be a penalty when the invoice is not paid within the set terms. What’s more, when you have an interest invoice you will need to make sure to include an elaboration of the fee you will be charging with every new invoice that you send.
6. Recurring invoices
Depending on what industry you’re in and what type of business you have, recurring invoices may be worth looking into. Especially if what you’re selling is based on subscriptions, recurring invoices can be quite helpful. With those recurrences, you can save a lot of time and it also allows you to have a better forecast of what your income will be. In addition, it can also give you a better overview of your customer retention because you’ll notice which customers are sticking around and which ones aren’t.
7. Invoice Factoring
If for some reason you have a lot of customers who pay late, invoice factoring may allow you to keep your business going. Invoice factoring means you will get money in immediately because you’re selling your unpaid invoices to a third-party. This third-party will then buy your debt so you can keep your cash flow. However, you should note that these third parties only track your invoices and collect what’s owed after paying you. They’re definitely not debt collectors. However, it does offer you the benefit of immediate payment.
8. Quotes & estimates
These two are probably quite familiar, however, they are very often used interchangeably when there actually is a difference between the two. Estimates are really only an estimation of what a product or service could cost. Because it’s an estimation it can be very well that the eventual price will differ quite a bit from the estimate. Naturally, customers will prefer to know beforehand exactly how much something will cost rather than a guess. That’s why there are quotes, which provide more details and describe an exact amount.