Understanding invoice payment terms is essential for maintaining healthy cash flow and setting clear expectations with your clients. Whether you're a freelancer, contractor, or small business owner in Canada, choosing the right payment terms can significantly impact when and how you get paid.
This guide explains the most common payment terms, when to use each one, and how to enforce them effectively.
What Are Invoice Payment Terms?
Payment terms are the conditions you set for when and how clients should pay your invoices. They establish a clear agreement between you and your client about:
- When payment is due - The deadline for receiving payment
- Any discounts available - Incentives for early payment
- Consequences for late payment - Fees or interest charges
- Accepted payment methods - How clients can pay you
Clear payment terms reduce confusion, minimize payment disputes, and help you forecast your cash flow more accurately.
Common Payment Terms Explained
Here are the most commonly used payment terms in Canadian business:
| Term | Meaning | Best For |
|---|---|---|
| Due on Receipt | Payment due immediately | New clients, small projects |
| Net 15 | Due within 15 days | Regular clients, service businesses |
| Net 30 | Due within 30 days | Most B2B transactions |
| Net 60 | Due within 60 days | Large corporations |
| Net 90 | Due within 90 days | Government contracts |
| 2/10 Net 30 | 2% discount if paid in 10 days | Encouraging faster payment |
Set Payment Terms and Auto-Reminders in iBill
Configure your preferred payment terms once. iBill adds them to every invoice and sends automatic payment reminders.
Create InvoiceNet 30: The Industry Standard
Net 30 is the most widely used payment term in Canadian business. It means the client has 30 days from the invoice date to pay the full amount.
Why Net 30 Is Popular
- Gives clients reasonable time to process payments
- Aligns with most companies' monthly billing cycles
- Standard in most industries, so clients expect it
- Balances cash flow needs with client relationships
Pro Tip: Start with Shorter Terms
For new clients, consider starting with Net 15 or Due on Receipt. You can always extend to Net 30 once they've established a good payment history with you.
Net 15: Faster Cash Flow
Net 15 requires payment within 15 days of the invoice date. This term is increasingly popular among small businesses and freelancers who need faster access to their earnings.
When to Use Net 15
- For ongoing service relationships with regular clients
- When working with small to medium businesses
- If you have cash flow concerns
- For smaller invoice amounts
Due on Receipt: Immediate Payment
"Due on Receipt" (or "Payable on Receipt") means payment is expected as soon as the client receives the invoice. While this provides the fastest payment, it's not always practical for larger invoices or established business relationships.
Best Uses for Due on Receipt
- First-time clients with no payment history
- Small, one-time projects
- Rush jobs or expedited work
- When clients have a history of late payments
Important: Set Expectations Upfront
If you require immediate payment, discuss this with your client before starting work. Surprise payment terms can damage business relationships.
Net 60 and Net 90: Extended Terms
Extended payment terms of 60 or 90 days are typically reserved for:
- Large corporations with complex procurement processes
- Government contracts that often have longer payment cycles
- Large orders where the client needs time to resell goods
- Long-term strategic partnerships where relationship matters more than cash flow
Consider the Cost
Before agreeing to Net 60 or Net 90 terms, calculate whether you can sustain the wait for payment. Factor in your operating costs and consider whether you need to adjust your pricing to compensate.
Early Payment Discounts: 2/10 Net 30
Early payment discount terms incentivize clients to pay faster by offering a small discount. The most common format is "2/10 Net 30."
How 2/10 Net 30 Works
This term means: "Take a 2% discount if you pay within 10 days, otherwise the full amount is due in 30 days."
Example Calculation
Invoice Total: $5,000.00
Your client saves 2%, and you get paid 20 days faster. It's often a worthwhile trade-off.
Common Early Payment Discount Variations
- 1/10 Net 30: 1% discount if paid within 10 days
- 2/10 Net 45: 2% discount if paid within 10 days, otherwise due in 45
- 3/15 Net 30: 3% discount if paid within 15 days
The Math Behind Early Payment Discounts
A 2% discount for paying 20 days early translates to an annualized return of roughly 36% for your client. That's a compelling reason for them to pay early, and it costs you less than waiting an extra 20 days for your money.
Choosing the Right Payment Terms
The best payment terms depend on your specific situation. Consider these factors:
Questions to Ask
- What's your cash flow situation? If tight, use shorter terms
- What's standard in your industry? Stay competitive but protect yourself
- How established is the client? New clients get shorter terms
- What's the invoice amount? Larger invoices may need longer terms
- What's your relationship with the client? Trusted clients earn longer terms
- Do you have other income sources? Diversified income allows flexibility
Recommended Terms by Situation
| Situation | Recommended Terms |
|---|---|
| New client, first project | Due on Receipt or 50% upfront, 50% on completion |
| Regular client, good payment history | Net 15 or Net 30 |
| Large corporation | Net 30 or Net 60 (negotiate if possible) |
| Government contract | Net 60 or Net 90 (often required) |
| Client with late payment history | Due on Receipt or upfront payment |
| Long-term retainer client | Net 15 with monthly billing |
How to Enforce Payment Terms
Setting payment terms is only half the battle - you also need to enforce them consistently.
1. Put It in Writing
Include payment terms in your contract or service agreement before starting work. This creates a legally binding agreement that protects both parties.
2. Display Terms Clearly on Every Invoice
Make sure your payment terms are prominently displayed on each invoice, including:
- The specific due date (not just "Net 30")
- Any applicable late fees or interest
- Accepted payment methods
- Your bank or payment details
3. Send Invoices Promptly
Invoice immediately upon completing work. The sooner you invoice, the sooner you get paid. Delayed invoicing trains clients to expect delays.
4. Send Payment Reminders
Send friendly reminders:
- 7 days before due date: Gentle reminder that payment is upcoming
- Due date: Reminder that payment is due today
- 7 days overdue: First overdue notice
- 14+ days overdue: Escalate with phone call or more formal notice
Automate Your Reminders
With iBill.ca, you can set up automatic payment reminders that are sent to clients at the intervals you specify. This takes the awkwardness out of chasing payments.
Late Payment Policies in Canada
You have the right to charge interest or fees on overdue invoices in Canada, but there are some important considerations.
What You Can Charge
- Interest: A percentage charged on the overdue amount (e.g., 1.5% per month = 18% annually)
- Late fees: A flat fee for overdue invoices (e.g., $25 late fee)
- Collection costs: Reasonable costs incurred to collect the debt
Making Late Fees Enforceable
Requirements for Enforceable Late Fees
- Disclose upfront: Terms must be stated before work begins
- Be reasonable: Courts may not enforce excessive fees (keep under 2%/month)
- Be consistent: Apply the same policy to all clients
- Put it in writing: Include in contracts and on invoices
- Follow through: Actually charge the fees you state
Sample Late Payment Clause
Example Invoice Language
"Payment is due within 30 days of the invoice date. Overdue accounts will be subject to interest charges of 1.5% per month (18% annually) on the outstanding balance. A late payment fee of $25 may also apply to accounts more than 15 days overdue."
Canadian-Specific Considerations
When setting payment terms in Canada, keep these factors in mind:
Criminal Interest Rate
Under the Criminal Code of Canada, charging more than 60% annual interest is illegal. Keep your late payment interest well below this threshold - most businesses charge 12-24% annually (1-2% per month).
Provincial Variations
Some provinces have specific consumer protection rules about payment terms and late fees. While these primarily apply to consumer transactions, it's good practice to stay within reasonable limits for B2B as well.
GST/HST on Late Fees
Late payment charges and interest are generally exempt from GST/HST. However, if the late fee is actually compensation for additional services (like extending credit), it may be taxable. Consult your accountant if you're unsure.
Bilingual Invoicing
If you do business in Quebec or with federal government contracts, you may need to provide payment terms in both English and French.
Simplify Your Payment Terms with iBill
iBill.ca makes it easy to set payment terms, send automatic reminders, and track overdue invoices. For Canadian businesses.
Get Started TodayFrequently Asked Questions
What does Net 30 mean on an invoice?
Net 30 means the full payment is due within 30 days from the invoice date. It's the most common payment term used by Canadian businesses, giving clients a reasonable timeframe to process and pay invoices.
What is 2/10 Net 30 and how does it work?
2/10 Net 30 is an early payment discount term meaning the client can take a 2% discount if they pay within 10 days, otherwise the full amount is due in 30 days. For example, on a $1,000 invoice, paying within 10 days would cost only $980.
Can I charge late fees on overdue invoices in Canada?
Yes, you can charge late fees in Canada, but they must be reasonable (typically 1-2% per month) and clearly stated on the invoice before the work is done. Include late payment terms in your contract and on every invoice to make them enforceable.
Which payment terms should I use for my business?
The best payment terms depend on your industry and cash flow needs. Use Due on Receipt for new clients or small projects, Net 15 for regular clients, Net 30 for established business relationships, and Net 60 only for large corporations with strong payment histories.
Ready to automate your payment terms and reminders?
Create Invoice