Payment terms are the least negotiated part of most commercial agreements and one of the largest influences on whether a business runs out of cash. They get copied from the last invoice template, agreed in a sentence, and then govern the gap between doing the work and being paid for it.
The vocabulary does not help. Net, EOM, MFI and the discount notations are shorthand from an era of paper ledgers, and they are still printed on invoices by people who are not entirely certain what they mean.
What payment terms actually are
A payment term is a deadline plus any conditions attached to it. It answers three questions: how long the customer has, from when, and whether anything changes if they pay sooner or later.
The second of those causes most disputes. "30 days" is unambiguous only once both sides agree what day 1 is. Invoice date, the date the invoice was received, and the date the goods arrived can sit weeks apart, particularly where an invoice goes to a shared mailbox or a portal. If you write nothing else into your terms, write down which date starts the count.
The terms, decoded
- Net 7 / Net 14 / Net 30 / Net 60 / Net 90. The full amount is due that many days after the invoice date. "Net" means the whole sum, as opposed to a discounted one.
- EOM (end of month). The count starts at the end of the month of issue. Net 30 EOM on an invoice dated 3 March is due at the end of April, not 2 April.
- MFI (month following invoice). Payment falls due on a set day of the next month. "15 MFI" means the 15th of the month after the invoice.
- 2/10 net 30. A 2% discount if paid within 10 days, otherwise the full amount at 30 days. The first number is the discount, the second the window.
- Net monthly account. Payment due by the end of the month following the invoice, common with trade suppliers running monthly statements.
- CIA (cash in advance) and PIA (payment in advance). The full amount before anything is delivered.
- CoD (cash on delivery). Payment at the point the goods arrive.
- Stage or milestone payments. The total split across agreed points of delivery, standard on longer projects.
- Retainer. A fixed sum paid in advance each period against work drawn down.
Two of these deserve suspicion when a buyer proposes them. EOM and MFI both sound like minor administrative preferences and both quietly extend your wait by up to a month depending on where in the cycle you invoiced. A supplier invoicing on the 2nd under Net 30 EOM waits nearly 60 days.
What UK law says if you agree nothing
Terms are contractual, but the law supplies a floor. For commercial transactions in the UK:
- Where no payment date is agreed, payment is late 30 days after the customer receives the invoice, or after delivery of the goods or services, whichever happens later.
- Public authorities must usually pay within 30 days.
- Business-to-business terms longer than 60 days must be fair to both businesses, so an extended deadline imposed on a much smaller supplier is not automatically enforceable.
- Once a payment is late, you can claim statutory interest at 8% plus the Bank of England base rate on business-to-business debts.
- You can also claim a fixed sum for debt recovery costs, once per invoice: £40 on debts up to £999.99, £70 from £1,000 to £9,999.99, and £100 on debts of £10,000 or more. Reasonable additional recovery costs can be claimed on top.
Two points get missed. The interest right is statutory rather than contractual, so it applies whether or not your invoice mentions it. And the fixed sum is per invoice rather than per relationship, which on a run of small overdue invoices adds up faster than the interest does.
Our late payment interest calculator works out both figures, and the letter templates escalate in the order that tends to work.
Whether early payment discounts are worth it
The arithmetic on 2/10 net 30 is worth doing once, because the number surprises people on both sides.
Taking the discount means paying 20 days earlier to save 2%. You are giving up the use of 98% of the money for 20 days to avoid paying the other 2%, which is 2.04% for 20 days. There are roughly 18.25 twenty-day periods in a year, so on a simple annualised basis that is a little over 37%.
For the buyer, that is an exceptional return: far more than the cash earns sitting still and more than most overdrafts cost. If you have the money, take it.
For the seller, the same number is the price. Offering 2/10 net 30 across your ledger costs roughly 37% annualised on every invoice a customer discounts, which is expensive finance. It makes sense when you genuinely need the cash 20 days sooner and the alternative is more expensive, and it makes no sense as a habit.
Choosing your own terms
Four things actually drive the decision.
- Your cash conversion cycle. If you pay suppliers and staff before you are paid, long terms are a loan you are extending. Match the gap you can afford rather than the gap the market suggests.
- Who you are selling to. Large buyers run payment runs on fixed cycles. Terms that fall a day after their cut-off wait a whole cycle, so aligning with their run matters more than shaving days off the headline.
- What you are selling. One-off supply and long projects behave differently. Stage payments beat any Net figure on work that runs for months.
- Your leverage. Terms are negotiable in proportion to how replaceable you are. This is uncomfortable and true, and it is worth knowing which position you are in before you open the conversation.
Making terms stick
Terms only work if the mechanics behind them do.
- Agree them in writing before the work starts, not on the first invoice.
- State the trigger date explicitly: invoice date, receipt, or delivery.
- Get the invoice into the right system and quote the purchase order number, because a correctly addressed invoice is paid on time far more often than a chased one.
- Send a reminder before the due date rather than after. It costs nothing and it removes the most common excuse.
- Offer a payment method that suits the payer. A customer who has to raise a bank transfer pays slower than one who can settle a link, which is what pay by invoice exists for.
- Escalate on a schedule, not a mood. Consistent chasing at fixed intervals outperforms sporadic chasing that is more forceful.
The most useful habit is the least dramatic: decide the terms deliberately, write them down, and invoice the same way every time.
Sources
- GOV.UK, Late commercial payments: charging interest and debt recovery
- GOV.UK, Charging interest on a commercial debt
- GOV.UK, Claim debt recovery costs on late payments
- Late Payment of Commercial Debts (Interest) Act 1998, as amended
Statutory figures checked against GOV.UK on 6 August 2026. The Bank of England base rate moves, so confirm the current rate before quoting an interest figure.