Payment terms are a crucial factor for smooth business transactions and maintaining good relationships between the parties involved. Understanding and agreeing to the right payment terms is crucial to promoting healthy business relationships and avoiding disputes in the future.
This article takes a closer look at what payment terms are and the benefits they have for businesses. In the following sections, you will also learn more about the key elements and different types of payment terms.
What are payment terms?
Payment terms are the terms or agreements in a sales transaction that relate to the type, timing and requirements of payment that the buyer must fulfill for the seller. These terms are usually set out in a contract or agreement between both parties to provide clarity on payment expectations.
Payment terms play a crucial role in avoiding payment problems between buyer and seller and ensuring a smooth flow of funds for both parties. Establishing clear payment terms is an effective tool for facilitating smooth business transactions and ensuring compliance with mutual agreements.
Benefits of payment terms for businesses
Payment terms offer a number of benefits for businesses, especially sellers. Here are some of the key benefits of having clear payment terms in place:
Streamlining cash flow management
Smooth cash flow is essential to maintaining business operations. For vendors, payment terms help plan when and how much money will be received within a given period. This allows for better management of income and expenses while minimizing the risk of late payments from customers.
For buyers, payment terms ensure on-time payments and help avoid penalties for late transactions. In addition, early payment discounts can reduce business costs, providing further financial benefits.
Building strong customer relationships
Clear payment terms help to create trust and build strong customer relationships. When customers understand the payment terms, they feel more confident to do business with you and this strengthens their trust in your company.
Flexible payment terms can also encourage customer loyalty. Options such as installment plans or extended payment terms make transactions more convenient and ensure that customers are satisfied and more likely to remain loyal to your business.
Improve payment efficiency
Payment terms create a structured system for processing transactions that benefits both buyers and sellers. Clear rules help to avoid disputes, streamline payment processes and make financial transactions more efficient.
In addition, clearly defined payment terms simplify transaction recording and invoice management. Automated systems can monitor customer payments and send reminders for overdue invoices, improving overall efficiency and minimizing errors in financial management.
Key elements of payment terms
The structure of payment terms can vary depending on the company's policies and the needs of both parties. However, there are some key elements that are usually included:
Due date
The due date is the final deadline for payment specified in the terms. On this date, the buyer must make full payment or fulfill the agreed terms.
A clearly defined due date is crucial to give buyers a clear timeline for processing payments. This element helps sellers manage cash flow and ensures timely receipt of payment.
Net payment deadline
The net payment deadline indicates the time frame within which the buyer must pay in full after receiving the invoice. This component helps buyers plan their finances and ensure timely payments.
The net payment term is one of the most common terms and is usually indicated by "net" followed by the number of days available for payment. For example, "Net 30" means that the buyer must pay the invoice in full within 30 days of receipt.
Payment methods
Payment methods refer to the instruments used by the buyer to pay the seller. Common examples are bank transfers, credit and debit cards and digital wallets (e-wallets).
A clear definition of payment methods ensures that both parties agree on the acceptable forms of payment. Offering flexible methods that are preferred by the customer can speed up payment processing and increase transaction convenience.
Early payment discount
An early payment discount is a price reduction offered to buyers who pay before the due date. These discounts incentivize early payments and help businesses improve their cash flow and maintain positive customer relationships.
Types of payment terms
There are different types of payment terms that determine when and how payments are to be made. Businesses can choose the appropriate payment terms depending on their needs, type of business activity and potential risks. Below you will find an overview of the most common payment terms:
Cash on delivery (COD)
Cash on delivery is a payment term where the buyer pays the full amount upon receipt of the goods. Payment is made at the time of delivery, not before or after. Cash on delivery is often used for online shopping transactions.
This method offers security for both parties. Sellers receive payment immediately upon delivery of the goods, while buyers can only pay after receiving the order.
Cash before delivery (CBD)
When paying cash before delivery, the buyer must pay the full amount before the product is shipped. This clause ensures that the seller receives the payment in advance before shipping the goods.
CBD, often known as advanced payment, is often used for smaller transactions with new or unknown customers to reduce the risk of late or non-payment by the buyer.
Cash in advance (CIA)
Cash in advance (CIA) is a payment term where the buyer must pay a certain amount in advance before the seller processes the order. This method is usually used for high-value transactions to provide security to the seller.
CIA is usually used in international trade, e.g. export-import transactions involving large amounts of money, especially when the buyer's creditworthiness is unclear.
Net d days
Net d days is a payment term in which the buyer is obliged to pay the full amount within a certain number of days of receiving the invoice. The "d" stands for the number of days available for payment, such as net 30 days, net 60 days or net 90 days.
This period gives the buyer the opportunity to manage their finances before paying the full amount. Payment is normally due within 30, 60 or 90 days of receipt of the invoice, depending on the agreement between the seller and buyer.
Net end of month (EOM)
Net end of month is a payment term where the buyer must make payment within a certain period of time, calculated from the end of the month. In contrast to Net d Days, the payment period is based on the end of the month and not on the invoice date.
For example, if the buyer receives an invoice on December 3, 2024, with a payment term of 30 net d days, the payment is due on December 31, 2024.
More efficient management of payment terms with Aspire
Clear payment terms between sellers and buyers simplify financial management for both parties. However, the efficiency of payment terms can be compromised if the process is handled manually, such as sending reminders manually to buyers to meet their obligations.
To optimize the management of payment terms, you can use Aspire’s Business Account.
Aspire Business Account is equipped with an accounts receivable management function that allows you to create, send and manage sales invoices with just a few clicks. You can also track paid and unpaid receivables from a single, easy-to-use dashboard.
You can also automate payment reminders to your business partners before the due date. This feature helps to prevent late payments and ensure a smoother cash flow.
For even more effective payment collection, you can use Aspire's Payment Gateway, which enables seamless processing of customer payments.
Aspire offers a wide range of advanced features to help you optimize your company's financial management. Want to find out more? Contact our team today!
Frequently Asked Questions
How can Aspire support the unique financial needs and challenges of mid-sized businesses?
Aspire offers a comprehensive suite of expense management solutions tailored for mid-market companies. This includes sophisticated corporate cards, advanced budget controls, and streamlined claims and approval policies, all designed to enhance financial efficiency.
How quickly can a mid-market company integrate Aspire's solutions into existing systems and workflows?
Integration with Aspire's expense management solutions is swift and seamless. Mid-market companies can swiftly implement corporate cards with tailored features, set up nuanced budgets, and establish streamlined claims and approval processes, ensuring minimal disruption to existing workflows.
How does Aspire compare to competitors for international money transfers?
Aspire excels in international expense management with FX fees up to 2x cheaper than traditional banks.
Global payments are offered by various providers through business accounts. Read our article to know more about types of business accounts and how to choose the best one for your business. There are many banks and fintech companies offering business accounts to businesses in Singapore. We have covered them all in our blog, you can click the links to view accounts offered by various banks such as DBS, OCBC, Maybank etc.
However, if you are a start-up or a growing business, chances are you may not meet the eligibility criteria for most of these banks or find their charges to be expensive for your liking. You can consider opting for Aspire multi-currency account for global payments which offers you all the benefits, with eligibility criteria which are less stringent. Read our article on bank charges in Singapore for a quick and easy comparison.
What level of customization does Aspire offer to meet the specific financial requirements of mid-market clients?
Aspire understands the diverse financial needs of mid-market clients and provides a high level of customization to tailor solutions accordingly. This includes the ability to customize corporate cards with specific spending limits, rewards, and benefits that align with the unique requirements of each client.
Additionally, Aspire's budgeting features are adaptable to accommodate the distinct financial structures of mid-market enterprises. The platform also allows for fine-tuning approval policies, ensuring they align with the specific workflows and compliance standards of individual mid-market businesses. This commitment to customization empowers mid-market clients to optimize their expense management in a way that best suits their financial goals and operational preferences.
Is there a minimum balance required for Aspire Business Accounts?
No minimum balance is required to keep your SGD, USD, EUR, GBP and IDR Accounts activated.
Can Aspire's corporate cards be customized to cater to the specific needs of consulting teams on the go?
Yes, Aspire's corporate cards are highly customizable. Consulting teams can benefit from tailored spending limits, travel-centric perks, and real-time transaction tracking, ensuring that the cards meet the unique requirements of professionals on the move.
How does Aspire support budget management for consulting projects and travel expenses?
Aspire's platform offers sophisticated budget controls that consulting companies can adapt to project-specific needs. This includes setting project budgets, tracking expenditures, and receiving real-time insights to ensure that expenses align with project goals.
What are Aspire Corporate Card FX rates?
At Aspire, we want you to pay the lowest rates in the market.
- Zero card activation fees
- Zero card transaction fees
- Best FX rates, up to 2x cheaper than banks
How does Aspire help consulting companies enforce expense policies and approvals for travel expenses?
Aspire streamlines the claims and approval process, allowing consulting companies to establish and enforce expense policies seamlessly. Customizable approval workflows ensure compliance with company policies and industry regulations.
Is Aspire's platform scalable for consulting companies of varying sizes?
Yes, Aspire's platform is scalable and caters to consulting companies of all sizes. Whether you're a boutique consultancy or a larger firm, the platform's features can be adapted to meet your specific travel and expense management needs.
How can I open a business account in Singapore?
For a business account in Singapore, Aspire is an excellent choice. With a focus on startup and SME needs, Aspire offers a seamless and transparent banking experience.
Benefit from their user-friendly online platform, no minimum balance or account opening fees, and dedicated support for businesses of all sizes.
Aspire is designed to streamline your financial management, making it an ideal partner for entrepreneurs in Singapore.
How long does it take to open an Aspire business account?
Registration with Aspire takes less than 10 minutes which you can do via our website or mobile app.
Once registered, we will get back to you within 5 business days on whether your account has been activated or if we need further documents from you.
Our account verification process varies according to the nature of your business. In exceptional cases, it can take up to 7 days to process your documents.
How can Aspire's corporate cards benefit my startup?
Aspire's corporate cards offer a range of benefits for your startup. Earn 1% unlimited cashback on qualified spends, simplify expense management, enjoy streamlined transactions, and gain real-time insights into spending. With customizable limits, integration with accounting software, and enhanced security features, Aspire's corporate cards are designed to empower your startup's financial efficiency and provide added convenience for your team.
Is Aspire suitable for both early-stage and established startups?
Absolutely, Aspire caters to the needs of both early-stage and established startups. Whether you're just beginning your entrepreneurial journey or have an established business, Aspire offers tailored financial solutions to help streamline your operations.
From managing expenses and optimizing workflows to providing valuable financial insights, Aspire's platform is designed to adapt and scale with your business as it grows. The flexibility and scalability of Aspire make it a suitable choice for startups at various stages of development.
Is there a minimum balance required for Aspire Business Accounts?
No minimum balance is required to keep your SGD, USD and IDR* Accounts activated.
However, we recommend keeping your subscription plan amount available on your balance to ensure you're up to date with your payment every month.*
To create a recipient or make any transaction on your IDR Account, you'll need to have a minimum balance of IDR 10,000 on your account.
