What are some common invoice terms and definitions you should know?

Invoice numbers should be unique to each invoice to allow for ease in matching to corresponding accounting records. Many businesses use running sequential numbers sometimes with a customer’s first five digits of customer’s name or date in the YYYY/MM/DD format. Having a unique invoice number for each invoice allows you to pinpoint a specific invoice when answering questions or completing collection calls easily, especially if you are (hopefully) making multiple sales of products or services to the same customer.

In my experience, I have clients that are confused when the due date is in net terms. For example "net in 30 days" this means the total payment is due in 30 days from the date of the invoice. This day can vary depending on how many days fall within each month.

It’s best when due date terms are clear so that both parties know when to expect the payment to change hands. Keep the method of invoice delivery in mind when setting due dates. If emailing invoices to customers who frequently pay online, Net 10 terms may work. If sending paper invoices to customers who pay by paper check, allow for Net 30 to account for time in the mail back and forth. Due dates are used to encourage customer payment by a certain date and to determine when invoices are delinquent. Due dates can also be used to encourage customers to buy, like the buy now/pay in 12 months that some retailers use when due dates are set far into the future or to speed up cash flow for the business when set under 30 days.

All sorts of terms are indicated and specified by sole traders or limited companies. Traditionally an invoice is for settlement in '28 days from it's stated date'. (February only has a maximum of 28 days) However, tradesmen and small businesses frequently use 14 days to improve their cashflow, suppliers that businesses have an approved credit facility with often use 60 days or 1MD and with the advent of modern 'one stop account software' a customisable report takes the headache out of accounts payable or receivable. The essential part is to advise, agree and clearly indicate payment terms with your customers. https://www.nibusinessinfo.co.uk/content/payment-terms-commonly-used-invoice-payment-terms-and-their-meanings

A term I often see misunderstood on invoices is 30 days EOM. This is 30 days after the end of the current month. For example, if you send an invoice on the 5th of April with 30 days EOM TERMS, the invoice will not be due for payment until 30th May giving your customers 56 to pay. For a small business this can have a great impact on cash flow.

Great article thanks! In one of my previous jobs, they had an excellent accounting system which had pre-determined invoice masks. Had all the main features you could think of and made billing clients very easy for me and them as transparent. Conversely I worked at a smaller firm, and they often were vague in their description of services which led to numerous phone calls on clarification on what the charges were for! From my experience, the more professional, the better!