Invoice payment terms: 7 steps to check paid rates

• Read the payment figures as associations, not proof of cause.
• Separate paid rates from customer preferences.
• Use the checklist below to compare your own invoice groups.

If you manage people who send invoices, you probably have a sense of whether customers pay on time. A sense is not proof, and it rarely tells you which change would help. This post looks at published figures on invoices with payment terms and on online payment, so you know what to check in your own records.

The public numbers come with limits. They come from software vendors reporting on their own customers, and they are not a controlled test that compares identical businesses with and without terms. Even so, they are useful. They give you a baseline, a set of things to measure, and a few figures to test against your own books.

The main source is a Freshbooks article on using payment terms to get paid faster. Freshbooks describes its data this way: "We scanned payment terms for more than 1 million invoices from small businesses over the course of a year, along with whether the invoices were paid and how quickly payments were submitted." Freshbooks: Use Your Invoice Payment Terms to Get Paid Faster

That one sentence tells you three things. The sample is large. It covers invoices from small businesses, so a larger company with a different billing setup may see different results. And it tracks two outcomes: whether an invoice was paid, and how quickly payments were submitted. A manager should keep both in mind, because an invoice that is eventually paid can still arrive late enough to strain cash flow.

Vendor articles also make claims, and they should be read as claims. A company that sells invoicing or payment software has a reason to highlight findings that favor its product. That does not make the findings wrong, but it does mean you should check them against your own numbers before you act.

Four figures from these sources are worth keeping in front of you: the sample of more than 1 million invoices, the 88% figure, the 78.62% baseline, and an 86% preference claim from an accounting software vendor. The 88% and 78.62% figures measure payment directly. The other two give context and should be read that way.

The first paid-rate figure is about invoices that had payment terms. According to the Freshbooks article, those invoices were "paid more than 88% of the time, regardless of which term was used." Freshbooks: Use Your Invoice Payment Terms to Get Paid Faster This does not establish equal paid rates across terms.

The second figure is the baseline. The same article reports that, across the whole year, all invoices together were paid 78.62% of the time. Freshbooks: Use Your Invoice Payment Terms to Get Paid Faster

Read the two together with care. The first figure describes invoices that had terms. The second describes all invoices in the year, which is a mix that includes invoices with no terms. Without a separate paid rate for invoices without terms, these figures cannot establish the size of the gap between those groups. What the figures do show is that the group with terms sits above the overall average, by a visible margin.

The same article includes a chart that compares six detailed payment terms with the number of days clients took to pay. If you are choosing a term for your own business, open the original article and read the chart for yourself.

Before you compare numbers, agree on what they mean. A paid rate is usually the count of invoices paid in a period divided by the count of invoices issued in that period. It is simple, but the details matter. Does a partial payment count as paid? Does an invoice that was written off count as unpaid? Does the period start at the issue date or the due date?

Two teams can use the word "paid" and mean different things. Write down your definitions before you start, and apply them the same way to every group you compare. If your definition changes halfway through the year, your trend line will reflect the definition, not the customers.

Days to pay needs the same care. Pick a start point, usually the invoice date or the due date, and an end point. The more honest end point is usually the date the payment cleared in your account, not the date the customer says they sent it. A payment that is sent but not received has not helped your cash flow yet. For related cash-planning checks, see invoice collections .

A terms line is the part of the invoice that says when payment is due and what the customer should do next. Its job is to remove doubt. A customer who is unsure when a bill is due has an easy reason to wait, and a manager who has to chase a payment spends time that could go to other work.

The data above links invoices with terms to higher paid rates. You do not need to know which term is best to act on that. A consistent terms line is a low-cost step, and it is easy to standardize. A practical version looks like this:

• Use one wording for terms across all invoices, so customers learn to read it the same way every time.
• Put the terms in the same place on every invoice, near the total and the due date.
• State the due date in plain words, not only in a code the customer has to decode.
• Repeat the same terms in reminders, so the message does not change between the invoice and the follow-up.
• Review the wording once a year with the people who handle customer questions, and update it when customers keep asking the same thing.

Plain wording usually beats clever wording. A phrase a customer reads once and understands is more useful than one that needs a second look. When terms are unclear, customers ask about them, and each question adds delay even when the customer fully intends to pay.

These are general practices, not figures from a source. They are a reasonable way to test whether the link in the data holds in your own business. For checks before sending a bill, see auto repair invoices .

Online payment is the other half of the picture. Xero, an accounting software company, promotes its online payment feature with the line "Get paid up to 2x faster by accepting online payments." Xero: Accept Online Payments to Get Paid Fast Treat that as a vendor claim. The company sells the feature, and the claim does not say which businesses saw the result, over what period, or how the figure was measured. It still points in the same direction as the terms data: less friction in the payment step tends to help.

The reason is easy to see from the customer side. A customer who can pay online does not have to write a check, find a stamp, and post it. Each small step is a chance to delay. The cost also falls on the business that sends the invoices. A Freshbooks customer story describes a solopreneur named Jon, who explains: "I’m extremely busy, and it can stretch me really thin." He adds: "Trying to mail invoices would have been a nightmare." Freshbooks: How Frictionless Invoicing and Payments Pays Off for These 2 Solopreneurs

Online payment is not a cure for a weak terms line, and it does not replace follow-up. It removes one obstacle. Whether it helps your own paid rate is a question for your own data, which the checklist below helps you test.

Preference is different from behavior, so keep these figures in their place. Xero states that 86% of customers say they prefer to pay by credit and debit card. Xero: Accept Online Payments to Get Paid Fast That is a claim about what customers say they prefer. It is not a measure of how often invoices get paid, and it does not tell you how much faster your own invoices will move. It does support one practical idea: offering card payment is likely to match what many customers already expect.

Square, a payments company, puts the broader point plainly: "No matter where you sell, customers want options when they pay." 4 Online Payment Methods That Customers Want | Square The lesson for a manager is not to force one payment method. Offer at least one online option, and keep an alternative for customers who prefer a different route. The goal is fewer reasons to delay, not a single perfect channel.

Ask your customers which way they prefer to pay. A short question on the invoice or in a follow-up email can tell you more about your own customer base than any general figure.

Four mistakes come up often when managers try to measure payment behavior.

• Comparing groups that differ in other ways. If invoices with terms go mostly to long-standing clients and invoices without terms go mostly to new ones, the gap may reflect the clients, not the terms.
• Counting invoices too early. An invoice that is not yet due should not count as unpaid. Keep open invoices in their own column until the due date has passed.
• Treating a vendor claim as your result. A headline figure from a software company describes that company's customers, not your business. Use it to decide what to test.
• Forcing one payment route. If the only option is one method, customers who prefer another may simply wait. Adding a second route is usually a small change.

Use these steps to test the claims against your own records. None of them needs special software. A spreadsheet is enough for most small teams.

1. Export a full year of invoices. Include the terms wording, the issue date, the due date, and the date each payment cleared. A full year smooths out seasonal swings.
2. Tag each invoice. Mark it as having terms or not. If your invoice form always includes terms, the question is about older invoices, which may need a manual check.
3. Calculate the paid rate for each group. Use the definition you wrote down earlier. Compare the group with terms against the group without, and against the total.
4. Calculate days to pay. Use the same start and end points for both groups, and look at the spread as well as the average. A few very late invoices can distort the average.
5. Change one thing at a time. For example, standardize the terms line for one quarter, then review. Changing terms, payment options, and reminders together makes it impossible to know what helped.
6. Add an online payment option and compare. Measure time to payment before and after, and note anything else that changed in the same period.
7. Write down what you find. Record the result, the period, and the limits of the comparison. This will matter when someone asks for proof.

Suppose an illustrative group contains 10 invoices and 8 are paid under your written definition. Divide 8 by 10 to calculate the group's paid rate. Repeat for the other group using the same definition and observation period. This calculation describes payment outcomes; it does not explain what caused them.

A manager who wants proof should be careful with before-and-after claims. A rise in paid rate could come from a change in customers, a seasonal shift, a new reminder schedule, or one large client paying late and then on time. Compare like with like where you can, and avoid announcing a result from one short stretch of time.

Watch for uneven rules, too. If you remove disputed or written-off invoices from one group and not the other, the comparison is no longer fair. Decide on the rules first, then apply them to both groups.

The public figures can guide your test, but your own numbers should make the decision. If your paid rate for invoices with terms is already high, the terms line may not be the bottleneck. If your paid rate is high but days to pay are long, the delay may sit in the payment step rather than in whether customers intend to pay. That is where online payment is worth a closer look.

Open an invoice today and check whether its due date and payment instructions are clear. Note any wording you would change before preparing your comparison.

Do payment terms guarantee payment?

No, the reported association does not prove that adding terms causes payment.

Can partial payments count as paid?

They can if your written definition includes them and you apply that definition consistently to both groups.