What is a payment due date?

A payment due date meaning in business, a due date is the last day employers can make a payment on an invoice or debt before it’s considered late. A due date is written on invoices, loan payments, credit card payments, and so on. The payment due date states when payment is expected and can carry a variety of penalties if the date passes and no payment was received.

What happens when a payment due date passes?

Due dates aren’t meaningless. There are often specific rules about what happens when a due date passes without payment. Due dates can be specified by the client or seller. If a payment date passes, the payment is considered late and will result in consequences such as late fees or sending a collection agency to get the funds..

Why is it important to include a due date in payroll processes?

One of the main reasons to include a due date for payroll or invoices is to establish trust with employees, abide by local laws, and encourage customers to pay on time. Typically, customers should send payment within 30 days of receiving an invoice.
It is possible to negotiate longer payment periods, but both parties should agree on the final date and it should be written on the invoice or specified in a contract.

What are some best practices for setting payment due dates?

When setting a due date, there are a few important things to consider:

• Avoid ambiguity when describing payment terms. Vague terms such as ‘end of the month’ can cause confusion. Instead, be specific: ‘Payment will be sent by or on the 10th of each month.
• Write out the due date in full using the day, month, and year.
• Plan in advance during busy seasons such as December. This busy time of the year can make it difficult to receive or chase payments.
• Offer multiple payment methods so clients can pay in a way that works for them.
• Shorten payment periods as needed. If the business has cash flow issues or sees clients delay payments, consider shortening the payment period.
• Invoice early (ideally the day of the order or service) and give the customer time to address any concerns.

Definitions of common payment terms

Common invoice terms used across verticals and industries include:

1. Net 7/30/60: Payment due in 7/30/60 days.
2. 2/10 Net 30: The customer receives a 2% discount if they pay within ten days of receiving the invoice.
3. Early payment: Includes a discount if the customer pays the invoice before the due date.
4. Contra payment: When the customer provides supplies for the good or service they purchased. The contra payment offsets the value of the supplies.
5. Terms of sale: Outlines the buyer’s and seller’s responsibilities in a transaction (e.g. delivery and payment dates)
6. Payment plan details: A section in the contract that describes the payment process.
7. Payment method: How the customer can pay their invoice (e.g., bank transfer, cash, credit card, etc.)
8. Upfront: An advance payment where the customer pays before work starts.
9. Cash on delivery (COD): The customer pays cash to the delivery company when the goods are delivered.
10. Cash in advance (CIA): The Seller receives payment before order shipment.
11. End of month (EOM): The invoice is payable by the end of the month it was issued.
12. Cash with order (CWO): The customer must include payment when submitting an order.
13. Payment in advance (PIA): The customer pays the seller before delivery of goods or before working on a project.
14. Cash before shipment (CBS): The customer must pay the seller before goods are shipped.
15. Cash next delivery (CND): The customer must pay for the previous order to receive the next order.
16. Month following invoice (MFI): An invoice issued after the 30th of the month is due on the 30th of the following month.
17. Prompt payment discount (PPD): Confirms that the customer may receive a discount if they pay within a certain time frame.
18. Cash against documents (CAD): Used during international shipping transactions. The importer must make a full payment before the exporter sends the shipping documents that allow the importer to receive the goods.
19. Interest Invoice: All of the interest charges for a customer and is sent alongside a standard invoice if the customer owes interest on unpaid invoices.

Invoice due date vs. issue date

The due date is the latest date entities must pay an invoice. The invoice date is when the invoice was issued.

Legal requirements around due dates

The legal requirements around payment due dates vary by country, state or industry, but here’s a general overview of how it works:

United States

• There’s no federal law that sets standard payment due dates for B2B payments.
• The contract defines the payment terms, usually net 30, 45, or 60 days.
• If no terms are stated, the Uniform Commercial Code (UCC) applies, and payments are expected in a “reasonable time” (usually 30 days).
• A party can charge late payment interest if agreed in writing, or per state laws.

European Union

The EU Late Payment Directive requires that:

• Public authorities must pay within 30 days.
• Private companies must pay within 60 days, unless parties have an alternative agreement.
• Creditors can charge statutory interest (ECB rate + 8%) and a minimum of €40 compensation for late payments.

United Kingdom

Similar to EU rules:

• Businesses must pay within 30 days (public sector) or 60 days (private), unless agreed otherwise.
• Interest can be charged at 8% above the Bank of England base rate, plus a fixed fee.

Other Countries

Australia: The Payment Times Reporting Scheme requires large businesses to report payment times to small businesses, although there’s no fixed legal limit.

India: MSMEs (Micro, Small, Medium Enterprises) must be paid within 45 days of goods/service delivery if there’s no agreement.

Canada: No national law, but Ontario and some provinces have late payment rules in place, especially for construction.