Payment terms

These outline how customers pay for your goods and services and the details of when you expect payment. Payment terms will vary from business to business and generally refer to the payment methods you will accept, whether you provide credit and the terms of credit, and your debt collection policies.

Payment terms are part of a sales contract in Australia and so operate under contract law. Failure to comply with the agreed payment terms is a breach of contract.

Payment methods typically used by small businesses include:

  • cash
  • cheque
  • credit and debit cards
  • BPAY or online payments
  • vouchers and gift cards
  • direct debit

Goods and services can be paid for upfront or on delivery, or are supplied on credit (where payment is deferred for a period of time after the goods or services have been supplied).

Offering credit increases your risk of being paid late, or not at all, so for customers you don’t know well consider upfront or on delivery payments, also in situations where you have outlaid large amounts of money to supply the goods or service.

Your approach will vary depending on your business needs and cash flow requirements. Some businesses only accept payment on delivery and do not provide credit, other businesses offer both.

Standard terms of credit are often seven, 21 or 28 days. Your payment terms should be stated on all invoices.

If you provide credit it is advisable to develop a credit application process to screen customers and avoid those with a poor credit history.


  • To maintain a healthy cash flow keep payment terms for customers shorter than those with your suppliers.
  • Restrictions apply to the credit card fees you are allowed to charge a customer. Visit the ACCC website for more information.

Credit application process

Before providing credit to a customer it is important to check their credit worthiness. Create a credit application form that includes:

  • full contact details of the applicant
  • the ABN, business structure, details of the directors, partners or owners (if dealing with a business), and trustees
  • contact details for at least three supplier referees
  • a signature confirming that they have read and understood your terms and conditions and agree to abide by them
  • permission to conduct a credit check

If the business seeking credit is a company, you may want to consider obtaining a directors’ guarantee (include this request in the application form). This means if the company gets into financial difficulties you can hold the directors’ liable for the debt. The Australian Securities and Investments Commission (ASIC) website provides a list of credit information brokers offering a range of services, including credit check reports.

Decide whether to offer credit

Make a decision after:

  • checking the business’s registration using ABN Lookup
  • contacting the customer’s referees to review their payment history
  • completing a credit check
  • obtaining relevant guarantees (if applicable)
  • obtaining a history of cash sales.

Advise the customer of your decision

It is recommended to advise the customer in writing of your decision, even if you decline their application. If you decide to provide credit let them know the:

  • credit limit
  • credit terms
  • penalty or default terms
  • any other terms and conditions

When providing credit, ensure that you invoice regularly. Monitor your debtors closely so that you can follow up on overdue payments and do not allow customers to exceed their credit limit.

Terms and conditions for providing goods and/or services

If you provide credit to customers it is essential to put the terms and conditions in writing. This will help to minimise payment disputes and ensure you can effectively manage your finances. Seek legal advice to ensure that your terms and conditions protect your interests and are enforceable.

Terms and conditions should:

  • specify how and when payments are made
  • outline any penalties for late payments, including the rate of interest and fees
  • disclose any additional fees that may apply to payments, such as credit card fees
  • be clearly included on all quotes, estimates, contracts and related documentation
  • meet your business needs
  • include no illegal or unfair terms

It is good practice to have customers sign acceptance of your terms and conditions before providing any goods and/or services. You can minimise your risk, by developing a credit application process or considering alternatives to offering credit.

Learn more about how to prepare standard terms and conditions.

Invoicing and payments

Invoicing on a regular basis will help you maintain a healthy cash flow. Invoices should clearly state details of the goods and/or services, the amount owing, the due date for payment and available payment methods.

It is important to know the difference between an invoice and a tax invoice. If your business is not registered for GST, your invoice should not include a taxable component and should be referred to as an ‘invoice’. However, if your business is registered for GST, the invoice should state the GST against each item and have the words ‘tax invoice’ included.

The Australian Tax Office has developed voluntary standards relating to the layout of tax invoices and invoices, as well as practical information for issuing tax invoices. Monitor debtors (those who owe you money) closely and act quickly when payments are late.

If you have extended payment terms, consider providing a reminder to your customers before the payment due date to ensure they remember to pay on time.

Action to take

Read our article on how to prepare an invoice for more information on the difference between an invoice and a tax invoice and what to include in each.

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