The Payment Terms
List of Payment Terms
The complete list of payment terms is extensive and can vary based on industry, region, business relationships, and negotiation agreements.
Some common payment terms often used in business transactions:
- Advance Payment: Payment made in advance before goods or services are provided.
- Cash on Delivery (COD): Payment is made at the time of delivery.
- Cash with Order (CWO): Payment is made when the order is placed.
- Cash in Advance (CIA): Full payment is made before goods are shipped or services are provided.
- Credit Terms: Payment is made on credit within a specified time frame.
- Credit Card: Payment is made using a credit card.
- Net Payment Terms:
- Net 7: Payment due within 7 days from the invoice date.
- Net 10: Payment due within 10 days from the invoice date.
- Net 15: Payment due within 15 days from the invoice date.
- Net 30: Payment due within 30 days from the invoice date.
- Net 45: Payment due within 45 days from the invoice date.
- Net 60: Payment due within 60 days from the invoice date.
- Net 90: Payment due within 90 days from the invoice date.
- EOM (End of Month): Payment is due at the end of the calendar month.
- ROG (Receipt of Goods): Payment is made upon receipt of the goods.
- 30 Days EOM: Payment is due 30 days after the end of the month.
- 1st/2nd Prox: Payment is due on the first or second day of the following month.
- Prompt Payment Discount:
- 1/10, Net 30: 1% discount if paid within 10 days, otherwise, net amount is due in 30 days.
- 2/10, Net 30: 2% discount if paid within 10 days, otherwise, net amount is due in 30 days.
- 2/15, Net 30: 2% discount if paid within 15 days, otherwise, net amount is due in 30 days.
- Cash Discount Terms:
- 2/5, Net 30: 2% discount if paid within 5 days, otherwise, net amount is due in 30 days.
- Stage Payments: Payments made at specific stages or milestones of a project.
- Consignment: Payment is made after goods are sold from the buyer's inventory.
- Retainers: A fixed amount paid upfront to secure services or goods, with the remaining balance paid upon completion or delivery.
- Payment Upon Invoice Approval: Payment is made after the buyer approves the supplier's invoice.
- Letter of Credit (LC): Payment is made through a letter of credit issued by a bank.
- Escrow: Payment is held in a third-party account and released to the supplier upon meeting specified conditions.
- Retention: A percentage of the payment is held back until the contract is completed.
- Payment Against Documents (PAD): Payment is made upon presentation of specific documents, such as shipping or title documents.
- Installments: Payment is divided into equal installments over a specified period.
- Bank Transfer: Payment is made via electronic funds transfer from the buyer's bank account to the supplier's bank account.
- Recurring Payments: Payment is made on a regular, ongoing basis, such as monthly or quarterly.
- Payment in Arrears: Payment is made after the goods or services have been received.
- Payment on Account: Payment is made against the buyer's account balance.
- Cost Plus Percentage: Payment includes the cost of the product or service plus a predetermined percentage of profit for the supplier.
- Cash against Documents (CAD): Payment is made upon presentation of specified shipping documents.
- 30 Days NAG (Not After Goods): Payment is due within 30 days after the goods are received.
- Proforma Invoice Payment: Payment is made based on a proforma invoice before the actual invoice is generated.
Incorporating these strategies into your supply chain and procurement practices can help optimize cash flow, enhance supplier relationships, and create a more efficient and cost-effective payment process. The specific strategies employed should align with your organization's goals and priorities.