When choosing payment terms ‘net monthly’ – where invoices are due to be paid by the end of the following calendar month – can seem like an easy option.
However, there are several interpretations of this term, so make certain you know exactly when payment is due. While the most common is as described above – setting the deadline for the end of the calendar month after the one in which the invoice is issued – there are some variations in less common usage too. For instance, some people confuse the payment terms ‘net monthly’ and ‘net 30 EOM’, the latter of which means the deadline is exactly 30 days from the end of the month.
In a 31-day month, that could lead to you expecting payment by the 30th at the latest, whereas a client waiting until the deadline date may interpret ‘net monthly’ to mean the 31st. Some other people don’t recognise that the deadline is based on the end of the month – and consider ‘net monthly’ to mean one calendar month from the date the invoice is issued. Clearly there is scope for confusion, and if you prefer to stick to net 30 payment terms, nobody will blame you.
If you do use net monthly payment terms, it can be wise to spell out exactly your definition of the phrase, as part of your full terms and conditions, and remember 2016 is a leap year, so invoices raised in January on a net monthly basis might not be paid on or before February 28th, and still would not technically be overdue.
More than this, February 29th is a Monday – so while you might expect payments to come in on the Friday, ahead of the weekend, you could be looking at a three-day delay this time around.
It still should not cause major cash flow problems, and if it does, your finances probably need some close scrutiny, but it’s worth being aware of before you accuse any clients of non-payment on the morning of Monday February 29th.
This does however give you an extra day in February to raise new invoices – one last chance to put some extra orders through the books and, all being well, receive payment in March before the tax year ends in early April.