What are payment terms?
- By Book Keeping Pros
- Sources checked 16 Oct 2026
Definition
Payment terms are the conditions a business sets for how and when its customers pay, such as the payment methods it accepts, when payment is due and whether credit is offered. They appear on quotes, invoices and contracts, and the due date they set decides when an unpaid invoice becomes overdue.
In the books, payment terms become due dates. When an invoice is entered, its due date comes from the terms agreed with that customer, and a list of unpaid invoices sorted by how far past due each one is shows who to follow up first. A business also sits on the other side of payment terms when its suppliers set when their bills must be paid.
Terms only help when both sides know them before the sale. Writing them on the quote and repeating them on every invoice makes it harder for a customer to say later that they expected longer to pay, and changing them for an existing customer is clearer when the new terms are confirmed in writing before they apply.
In Australia
business.gov.au describes payment terms as a business's own rules on when and how its customers pay, and notes that contract law treats them as part of the sales contract. It suggests showing them on invoices and contracts, covering the payment methods you take, when payment is expected, whether credit is offered and on what conditions, and how overdue amounts are followed up.
On credit terms, it says credit is common between businesses and can lift sales, but brings the risk that a late or missed payment hurts cash flow. To reduce that risk it suggests checking a customer's credit before offering it, capping how much credit each customer gets, and making clear that goods stay yours until they are paid for in full. For help choosing terms, it points to industry associations and business advisers.
For late payments, it suggests a clear process for following up, starting with a polite reminder by phone or email, since some customers simply forget.
Worked example
| Invoice | Terms | Issued | Due |
|---|---|---|---|
| INV-101 | Payment on delivery | 3 Mar 2026 | 3 Mar 2026 |
| INV-102 | 14 days | 3 Mar 2026 | 17 Mar 2026 |
| INV-103 | 30 days | 3 Mar 2026 | 2 Apr 2026 |
| INV-104 | End of the following month | 3 Mar 2026 | 30 Apr 2026 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Leaving payment terms off the invoice, so the customer has to guess when payment is due.
- Entering invoices with a default due date that does not match the terms agreed with that customer, so the overdue list is wrong.
- Offering credit to a new customer without checking their credit first.
Related terms
Related service
Accounts payable and receivable
Bills and invoices tracked, with you approving every payment.
Sources
- Payment terms
business.gov.au, Australian Government. Current at 16 October 2026, released 18 December 2025. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.