Payment terms for small business: how to set terms customers honour

Every day between finishing the work and being paid, you are lending your customer money for free. Payment terms decide how long that loan runs. Most owners inherit their terms from a template or an old habit and never question them. That’s a mistake worth fixing, because terms are one of the few cash flow levers you control completely.

What payment terms should a small business offer?

Start from the shortest terms your customers will realistically accept, then extend only where there’s a reason.

Customer type	Common terms	Why
Consumers / one-off jobs	Payment on completion, or deposit + balance on completion	No ongoing relationship to protect; hard to chase later
New business customers	7 or 14 days, deposit on larger work	You haven’t seen how they pay yet
Established business customers	14 to 30 days	Track record earns a little more credit
Large corporate or government buyers	Often their own terms	Negotiate, price it in, or bill in stages

business.gov.au notes business customers commonly pay in 7, 14, 21 or 31 days. None of those is compulsory. If you have always offered 30 days, test 14 on new customers and see who objects. Usually nobody does.

How should payment terms be worded?

Clear beats clever. On every quote and invoice include:

• A due date, written as a date (“Due 14 November”), not just “net 14”.
• How to pay — bank details, a payment link, any card surcharge.
• What happens if it’s late — for example, a reminder schedule, a late fee if agreed in advance, or work pausing on the account.
• Deposit and milestone amounts for bigger jobs.
• Retention of title if you supply goods — the customer doesn’t own them until paid, a protection business.gov.au specifically recommends.

Put the terms in the quote, not only the invoice. A customer who accepted a quote showing “50% deposit, balance due 7 days from completion” has agreed to it. A customer who first sees terms on the final invoice hasn’t.

Should you give customers credit at all?

Credit is a lending decision, even if nobody calls it that. Before offering terms to a new business customer, it’s reasonable to:

• ask for an account application with ABN, trading name and a contact in accounts payable;
• check references or run a credit check where appropriate;
• set a credit limit, and review it as they build a payment history.

This isn’t about distrust. It’s about making sure one customer can’t tie up more of your cash than you can afford to wait for.

Do early payment discounts work?

They can, but they’re expensive. A 2% discount for paying within 7 days instead of 30 is a large price for three weeks of cash when you annualise it. Before offering one, compare the cost with the alternatives — shorter terms, a deposit, or a short-term facility. Often the simplest fix is just shortening the terms.

If a customer’s terms are longer than your business can carry, see what funding might bridge the gap — it’s a 60-second enquiry with no credit check.

What if a big customer dictates the terms?

Large buyers often have fixed payment cycles — 45 or 60 days, sometimes paid only on specific days of the month. You have three choices:

1. Price the delay in. Longer terms cost you money, so the quote should reflect it.
2. Change the shape of billing. Ask for a mobilisation payment, progress billing or monthly invoicing on long jobs. See deposits and progress payments.
3. Fund the gap deliberately. A facility that matches the invoice cycle can turn a slow payer into a manageable one. Our feature on winning a big customer walks through the maths.

How do you make terms stick?

Terms only work if you act on them. The businesses with the best collection aren’t the toughest; they’re the most consistent. They send invoices the same day, send a friendly reminder a few days before the due date, follow up the day after and call at seven days overdue. Our overdue invoice playbook sets out a full sequence with scripts.

Which payment methods help terms work?

The easier you make paying, the more your terms are honoured:

• Payment links on invoices let customers pay by card in a few clicks. Weigh the merchant fee against the days saved.
• Direct debit suits recurring services such as maintenance contracts, memberships and retainers — the money moves on the due date without anyone remembering.
• Bank transfer with a clear reference remains the norm for business customers; make sure your details are on every invoice.
• Instalment arrangements can suit larger consumer jobs, as long as the schedule is written into the quote.

Whatever methods you offer, reconcile payments weekly so overdue accounts are spotted early. It’s one of the six checks in our weekly money routine.

When slow payers are squeezing the business

Good terms reduce the gap between doing the work and getting paid, but they rarely close it entirely — especially when you’re growing or working for bigger customers. That’s where working capital earns its place.

We work with trading businesses on cash-flow and line-of-credit facilities typically from $5,000 to $500,000, sized on turnover and bank statements, and on property-secured loans from $20,000 to $5,000,000 for larger needs. You can enquire without any credit check. We won’t broadcast your details to other lenders, and the person who calls you will have read what you told us. Please answer the questions accurately — it’s how we find the right fit on the first go.

Start a 60-second enquiry →