What is a Payment Term for a Contractor?

Payment terms are conditions that emphasize how and when the payment should be made to avoid any late fees. Often included in an invoice or estimate, they clarify what are the accepted payment methods and underscore special requirements discussed in a meeting with the client.

Overlooking the payment terms mentioned in an invoice will possibly result in late penalties for the recipient. Contractors include clear payment terms when they generate a new invoice to receive the payment in a timely manner.

Typical Payment Terms for Contractors

Here are some of the standard payment terms utilized by contractors when generating an invoice or estimate.

1. Payment on Delivery

Construction Contractors often ask the client to complete the payment once they have finished the task. So, contractors neither have to wait longer for payments nor annoy clients by making phone calls frequently.

With this payment term, the client is responsible for making instant payments right after the contractor completes their job. Sometimes contractors also outline the same payment term in an estimate to inform the client about payment urgency.

2. Use of Currency

The mention of accepted currency by the contractor is another standard payment term. With this, contractors aim to keep their foreign clients updated and reduce the time taken for fund transfers. Such payment terms further help clients choose the ideal payment method consisting of low transaction fees.

Clarifying this payment condition prior to the payment process can save time for both parties. The client doesn’t incur additional charges for transferring money twice, while the contractor receives the funds on time.

3. Net 30 Payment Term

Net 30 is a standard payment term offering a 30-day period to the client, in which they must clear the payment. Contractors use net 30 on an invoice to provide payment flexibility in a bid to strengthen their relationship with the client.

Noticing a net 30 payment term, the client will understand they have 30 days to pay the outstanding amount starting from the day an invoice is issued.

4. Late Payment Penalties

Describing late fees upon the payment delays is also a common practice. Contractors use this term to inform clients how much more money they need to pay if they fail to make a payment on time. Contractors mentioning late payment terms not only boost payment but also set them free from chasing payments.

Such payment terms are used to encourage clients for timely payments so that the contractors can collect the money without any follow-up emails.

Why Include Payment Terms in Construction Contracts?

Below are the factors that explain why writing payment terms in construction contracts should be a common invoicing practice.

1. Timely Payments

Specifying the payment terms can make sure the client follows the contractor’s payment schedule. This is because when the client learns about late penalties, they might process payments as early as possible, before the due date. Hence, payment terms could be your only solution to combat late payments.

2. Legal Protection

Payment terms listed on an invoice help you avoid legal consequences if a client files a lawsuit against your construction company. Since an invoice is a legally binding document, you can settle the legal cases if you have properly mentioned payment terms and conditions in an invoice.

3. No Communication Gaps

The presence of contractor payment terms on an invoice leaves no room for communication gaps. Both the issuer and the recipient would be on the same page. The issuer will know when to expect the payment, while the recipient will realize how quickly they need to complete the payment.

Contractor Payment Schedule Examples

Below are contractor payment terms examples that you might want to check out.

1. Cash on Delivery (COD)

COD is a pretty straightforward payment term. It is the contractor’s way of saying “Hey, I delivered the service, so you owe me money”. As soon as the contractor’s work is done, the client needs to initiate the payment online or hand over the cash. Failing to pay dues as per the payment schedule may lead to fines.

For example, a contractor is hired to repair a pipe leakage at a local restaurant. Upon finishing the work, the contractor sends an invoice with a COD payment term to the client. Now, the hiring party needs to hand over the money to the contractor after assessing their work.

2. Net 30, 60, & 90 Payment Terms

While some contractors can schedule their payment utilizing short payment terms like net 7, 15, or 30, others might prefer long payment terms like net 30, net 60, or net 90. Short payment terms provide extra days to fulfill the payment. Whereas, long payment terms offer a month or even more time to pay the outstanding amount.

Let’s say the flooring contractor is hired to repair wood flooring. Soon after completing the flooring job, the contractor sends an invoice with net 30 payment terms. This means that the client can pay the due amount within the 30-day period to avoid any additional fees.

3. 2/10 Net 30 Payment Term

If a contractor uses 2/10 net 30 or 1/10 net 30 payment terms, it provides a rewarding opportunity for the client. In simpler terms, the client can earn a 2% or 1% discount on the total amount if they complete the payment within the first 10 days from the invoice issue date.

In such cases, payment is scheduled to be made within 30 days, but contractors may get it early due to discounts that 2/10 net 30 terms bring in.

For instance, if the client assigns a landscaping job to a local contractor, then the contractor may finish the work and send an invoice, including net 2/10 net 30. Now the client can pay the money in 10 days and earn a discount of 2% on the total due amount. Following the 10 days, the full amount needs to be paid before the passing of the due date.

4. End of Month

As its name suggests, the end of month payments are scheduled for payment collection within a current month no matter when the work was completed. Contractors include the end of month payment term so the client can understand that they need to fulfill their dues before the end of the month.

For example, if the client receives an invoice on 11th April, the payment is scheduled to be completed before 30th April i.e. before the month’s end. That’s how contractors get paid in the same month.

Adding Contractors Payment Terms is Easy With Moon Invoice

Including payment terms using advanced software like Moon Invoice is not just easy but also boosts on-time payments. Here’s how.

1. Customizable Invoice Templates

Moon Invoice has in-built 66+ pre-designed invoice templates tailored to meet the requirements of every business type. This means you no longer need to create an invoice from scratch, just type the required details and start adding payment terms in such a way that they can quickly grab the client’s attention.

2. Automation in Every Step

It is a state-of-the-art invoicing software offering automation like no other. You don’t have to rely on manual things like pen and paper even when it comes to adding payment terms. It will assist you in generating a professional invoice that clearly outlines the payment terms and keeps your client updated.

3. One-click Invoice Share

Unlike a traditional method, you don’t have to arrange a physical meeting to hand over an invoice or exchange cash as long as you use Moon Invoice. Invoices can be shared digitally using WhatsApp or Email with a single click of the button and hence, there is no need to organize meetings.

4. Customer-centric Payment Methods

Since payment terms encourage consumers to clear their dues on time, offering multiple payment methods is equally important. That’s where Moon Invoice alleviates your invoicing job. It boasts more than 20 payment integrations so that contractors can provide a customer-preferred payment method to collect money in less time.

Conclusion

Whether you are a contractor or a freelancer, payment delays are common for many. Encompassing payment terms may clarify how and when the payment should be made but don’t always guarantee timely payment.

Either keep following up even after mentioning payment terms or switch to a powerful invoicing software like Moon Invoice if you want to get paid faster. The latter is more effective as it comes with advanced invoicing features, helping prevent payment delays and enhancing customer satisfaction.

Avail Moon Invoice’s free trial for a limited time and experience seamless invoicing.

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