cashflow
Payment Terms
The contractual rules for when and how customers pay you. The lever that controls cash flow.
Definition
Payment terms define when invoices are due (net 15, net 30, net 60), what payment methods are accepted, what discounts apply for early payment, what penalties apply for late payment. They are the most overlooked cash flow lever in most service businesses. Industry norms have drifted toward net 60 in enterprise B2B, which is brutal for cash flow. Strong payment terms (50% upfront, net 15 on balance) can transform cash flow without changing pricing or volume.
Standard US payment terms decoded
Common US B2B payment term shorthand. Net 30: full amount due 30 days from invoice date - the most common default. Net 15, net 45, net 60, net 90: same logic with different intervals. 2/10 net 30: 2 percent discount if paid within 10 days, otherwise full amount due in 30 days. COD (Cash on Delivery): payment due when goods are delivered. CIA (Cash in Advance): payment before delivery. Net 30 EOM: 30 days from end of month invoiced (effectively averaging 45 to 60 days). Standard varies by industry: tech and SaaS net 30, professional services net 30 to net 45, construction net 45 to net 60 with progress billing, healthcare 60 plus days normal due to insurance. Customer leverage matters; Fortune 500 enterprise buyers routinely impose net 60 to net 90 terms despite vendor preference.
Deposits, milestones, and retainers
The single highest-leverage payment term improvement for US service businesses is requiring an upfront deposit. Standard structures: 50 percent deposit at engagement plus 50 percent on completion (small projects under 25K); 33 percent at engagement, 33 percent at midpoint, 34 percent on completion (medium projects 25K to 250K); milestone-based billing with 4 to 6 milestones tied to deliverables (large projects 250K plus). Retainer models pre-pay monthly for a defined scope; sales conversation focuses on monthly value, not hourly rate. The deposit serves three functions: cash flow improvement, customer commitment signal (deposits reduce ghosting and scope expansion), and risk mitigation if customer disputes. New US clients who balk at deposits are typically poor customers anyway.
Early-pay discount mathematics
Offering 2/10 net 30 means a customer pays 98 cents on the dollar if they pay within 10 days versus 100 cents if they pay within 30 days. From the customer's perspective: paying 20 days early to save 2 percent is equivalent to a 36.7 percent annualized return on the cash deployed - extraordinary by any standard. From your perspective: you accept a 2 percent margin haircut to accelerate cash by 20 days. Whether this is worthwhile depends on your cost of capital and cash flow stress. If you are funding operations from working capital with cost of capital below 36 percent (almost always), early-pay discounts are profitable when customers take them. Track take-up rate; if customers do not take the discount, the discount is just dead margin. Tighten to 1/10 net 30 if take-up exceeds 60 percent.
Late fees, penalties, and enforcement
US late fee norms: 1.0 to 1.5 percent per month on overdue balances (12 to 18 percent annualized). Late fees serve two purposes: signal that timeliness matters and compensate for the cost of carrying overdue receivables. Enforcement matters more than rate: a 1.5 percent late fee that you never apply is meaningless. Best practice: state late fee policy in contract and on every invoice, apply automatically via QuickBooks or Xero on day 31 past due, escalate to founder call on day 60, send to collections on day 120. State laws vary; some US states cap late fees at specific rates (e.g., Texas at 18 percent annual on most B2B). Consult your contract attorney for enforceability. For chronically late customers, raise pricing or transition them out; persistent collectors are typically also high-effort customers with poor margin.
FAQ
Can I really require deposits from US enterprise customers?
Yes, with framing. US Fortune 500 buyers will often resist deposits as policy but will accept them when the alternative is no engagement. Frame deposits as standard practice for new vendors, payment for setup or onboarding costs, or commitment fees for scope-locking. For first engagements with new enterprise customers, 25 to 50 percent deposit is normal. For repeat engagements with established trust, milestone billing without deposit becomes acceptable. The category where deposits routinely fail: government contracts (federal, state, municipal) where payment is governed by appropriations and cannot include vendor pre-payment. Plan accordingly.
What is the right late fee rate?
1 to 1.5 percent per month (12 to 18 percent annualized) is the US standard and generally enforceable. Below 1 percent is too weak to influence behavior; above 2 percent risks state usury law issues in some jurisdictions. State your late fee policy in writing in the master agreement and on every invoice. Automate application in QuickBooks or Xero. The goal is not to collect late fees - it is to prevent late payment. Customers who consistently pay late despite stated fees should be triaged: either renegotiate terms, raise pricing to compensate for collection cost, or transition out.
Should I accept credit cards from B2B customers?
Yes despite the fee. Stripe, Square, or QuickBooks Payments charge 2.9 percent plus 30 cents per US credit card transaction. For B2B service businesses, the 2.9 percent fee is justified by faster collection (immediate versus 30 to 60 days), reduced collection effort, and higher acceptance among smaller business buyers. Many US B2B services now charge a 2.9 to 3.5 percent surcharge for credit card payment to pass through the cost; this is legal in most states but requires clear disclosure. ACH (bank transfer) typically costs 0.5 to 1 percent or flat fees of 0.25 to 5 dollars; for invoices over 5K, push customers toward ACH.
How do I get customers to actually pay on time?
Five practices that move the needle. One, invoice immediately upon work completion - every day of invoice delay adds a day to DSO. Two, automate reminders at 7, 14, 21 days past due via QuickBooks, Xero, or specialized AR tools (Chaser, Upflow). Three, escalate personally at 30 days - emails get ignored, phone calls do not. Four, make payment easy - accept ACH, credit card, and electronic check; mail-only payment is a relic. Five, train customers from day one - the first late payment that goes unaddressed becomes pattern; the first late payment that gets a same-day call becomes anomaly. Cumulative effect: typical US small business adopting all five sees DSO drop 15 to 30 days within one quarter.
What happens if a customer just refuses to pay?
Escalation ladder for US service businesses. Days 0 to 30 past due: automated reminders. Day 31 to 60: personal follow-up from account manager. Day 61 to 90: demand letter from owner or legal counsel. Day 91 to 120: send to collections agency (US collections agencies charge 25 to 50 percent of collected amount; effective for amounts over 1K). Day 121 plus: small claims court (US limits 5K to 25K depending on state, no attorney required) or full civil litigation (for larger amounts, requires attorney). Last resort: write off as bad debt for tax deduction. Most US business owners under-pursue legitimate collections; persistent escalation collects 60 to 80 percent of overdue amounts that would otherwise be written off.
In your business
- →Default to 50% deposit + net 15 on balance - don't accept net 60 by default
- →Add a 1-2% early-pay discount (2/10 net 30) - the math usually works in your favor
- →Late fee 1.5%/month makes late payment expensive enough to matter