Due on Receipt or Net 30: Which Payment Terms Should a Service Business Use?

Homeowners and commercial accounts get different terms

A homeowner has no accounts payable department, no payment run and no purchase order to match, and a net 30 invoice gives the bill a month to slide under the mail. For residential and one-time work, the term that fits is payment at completion: the invoice is presented when the work is finished and paid then by card, bank transfer or check. Larger jobs split the price rather than extend it: a deposit at signing, progress payments by stage, the balance at completion. Some states cap home improvement deposits, so check the state’s rule before setting the first number.

A homeowner who asks to pay over several months is asking for consumer credit. Regulation Z, the Truth in Lending rule, defines a creditor as a person who “regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment),” and counts a person as doing so regularly only if it extended such credit “more than 25 times (or more than 5 times for transactions secured by a dwelling) in the preceding calendar year.” Before offering a written payment plan with interest or more than four payments, ask the company’s attorney what applies, or point the customer to a lender.

A commercial customer pays through a process: an approver, a purchase order, an accounts payable team that pays on scheduled runs. Net 30 from the invoice date gives that process a date, and net 15 suits smaller accounts and weekly billing. A new account can start on due on receipt, or a deposit on the first job, and move to net terms once approved.

That approval is a credit decision, written down and made the same way for every applicant. What the credit application asks, which checks to run and how to set a limit are in the guide to checking a customer’s credit before giving terms.

Ask about payment runs before choosing between net 15 and net 30. An invoice that comes due the day after a run can wait for the next one, so the term that lands just before a run is the one paid on its due date.

When a large customer asks for net 60 or net 90

A request for net 60 or net 90 is a request for the business to finance the customer’s purchases. It has a cost that can be counted before the answer: annual billing to that customer × the extra days ÷ 365 × the yearly cost of money, whether that money comes from a credit line or the owner’s own cash.

Illustrative example: a hypothetical company bills one commercial customer $50,000 a month, $600,000 a year. On net 30, paid on time, about $49,000 of that billing is outstanding at any moment; on net 90, about $148,000. At an assumed 9% a year, carrying the extra $99,000 or so costs about $8,900 a year, close to 1.5% of everything billed to that account, before a single day past terms. The figures are invented for the example; the formula is the check. The answer does not have to be yes or no:

• Ask first: is net 60 the policy for every supplier, and on which days does accounts payable pay? A policy is negotiated differently from a preference.
• Price it: add the cost above to the bid as a line or a rate, so the account that wants the longer terms pays for them.
• Shorten the wait on each invoice: progress or milestone billing, so no single invoice covers more than a few weeks of work, or a deposit before a large job starts.
• Counter with net 45 from the invoice date, not from the customer’s approval, with the due date printed.
• If the buyer offers an early-payment program through a bank or a platform, get the fee and the payment day in writing and turn the fee into an annual rate before comparing it with a credit line.

Decline when the account’s margin cannot carry the cost. A large customer on terms the business cannot fund is a cash problem, however good the name looks on the customer list.

What has to be on the invoice for the terms to mean anything

An invoice the payer cannot process starts nobody’s clock in practice, whatever terms it prints. Federal rules spell out what a proper invoice carries, and the list is a usable model. FAR 32.905(b) requires, among other items, the invoice date and number, adding that contractors “should date invoices as close as possible to the date of mailing or transmission”; the contract or order number; a description with quantity, unit price and extended price; the shipping and payment terms; where payment is to be sent; and the person to notify “in the event of a defective invoice.” On federal work, the billing office returns an invoice that falls short within 7 days with the reasons, and the 30 days run from receipt of a proper one. For a service invoice, that reads:

• The invoice date, set to the day it is sent, and an invoice number.
• The customer’s purchase order, contract or work order number, exactly as the customer issued it.
• Description, quantity, rate and amount on each line, with each signed change order as its own line.
• The terms with their start date (“Net 30 from invoice date”) and the due date itself (“Due November 21, 2026”).
• How to pay, and a named person, phone number and email for questions about the invoice.
• Whatever the agreement says comes with it: the signed work order, photos, timesheets, a lien waiver.

Send it the day the work is done. For goods shipped on credit, such as parts a shop makes and ships, UCC § 2-310(d) sets the rule unless the parties agreed otherwise: the credit period “runs from the time of shipment but post-dating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.” Article 2 is enacted state by state and written for goods, not services, but the arithmetic carries over: every day the invoice waits is a day added to the terms. And the invoice should confirm terms, not introduce them. If the signed proposal says net 30 and the purchase order says net 60, which governs is a question for counsel, best settled before the first job.

How to change terms for a customer who already pays late

Start with the record. Pull twelve months of that customer’s invoices and payments, compute the days from invoice date to cash for each, and set them against the signed terms. If the slow days sit before the invoice, or on invoices returned for a missing purchase order number, the fix is on the business’s side and new terms will not touch it.

If the customer itself is slow, read the agreement first; it may allow a change on notice, fix terms for a period, or say nothing. The simplest change to defend applies to new work ordered after an effective date and leaves open invoices on the terms they were sent with. The written rule for moving an account to due on receipt or prepay, the letter that announces it and the record that earns net terms back are in the same credit guide, under cutting terms back.

If the agreement already carries a late-payment clause, the letter can point to it. Whether a clause added after the fact binds anyone is a separate question; the guide to charging interest on late invoices covers it.

What to check every week

Terms drift one exception at a time: a customer asks for a few more days, someone agrees on the phone, nobody writes it down. Five lines every Friday catch it:

• Invoices sent this week, and how many went out on the day the job was finished.
• Open invoices by customer, against each customer’s own terms rather than one company-wide average.
• Accounts that crossed the written rule, and who called them.
• New commercial accounts working without a signed credit decision or terms on file.
• Requests for longer terms, each with its cost worked out before anyone agreed.

Row 05 of the Friday Ledger, a weekly sheet kept by hand, already counts the invoices that came due and how many were collected.

When to leave terms alone, and where the Review fits

Leave terms alone when invoices go out the day the job is finished and customers pay within a few days of what the agreement says. A single slow customer is a phone call, not a policy. And if the days pile up before the invoice exists, the fix is upstream of any term.

For an owner-led service business, the Revenue Review counts this under the Invoice → Payment hand-off. From the company’s own proposals, invoices and payment records, read-only, it lists each customer’s terms as signed, as printed and as paid, and what the extra days cost in dollars a month. It drafts no contracts and gives no legal advice. It takes two weeks, and the report is the company’s to keep.

If the gap looks large, the next step is a free 20-minute call, where we say whether the weekly check above, run in-house, is enough.