Payment terms are not just an administrative detail — they are a commercial decision with direct cash-flow consequences. Terms that are too long finance your customers at your expense. Terms that are too short may be uncompetitive in your sector. Terms that are poorly documented may be unenforceable when you need them most. This guide covers how to choose and document payment terms that actually work.
Standard payment term options
The most common B2B payment terms in Australia are:
- 7-day terms — payment due within 7 days of invoice date. Common in transport and logistics, short-term hire, and businesses supplying perishable goods or services with immediate value. Tight terms reduce exposure but can be commercially difficult to impose on larger customers.
- 14-day terms — a widely accepted compromise that keeps the payment cycle shorter than the traditional 30 days. Increasingly common in professional services, consulting and smaller trade accounts.
- Net 30 terms — the historical standard for trade credit. Payment due within 30 days of invoice date. Common in wholesale, manufacturing supply and professional services dealing with larger clients.
- EOM (end of month) terms — payment due at the end of the month following the month in which the invoice was issued. A 30-day invoice issued on 1 January is not due until 28 February under EOM terms — effectively 55–60 days. Common in wholesale and distribution but significantly extends the payment cycle.
- 60-day terms — increasingly scrutinised under Australian law (see below), but still common where larger buyers have sufficient purchasing power to dictate terms.
The Payment Times Reporting Scheme
Since 2021, large businesses with annual turnover above $100 million are required to report their payment times to small businesses under the Payment Times Reporting Act 2020 (Cth). Reports are published on a public register. While the scheme does not prescribe maximum payment terms, it creates reputational pressure on large businesses that consistently pay slowly. For small business suppliers to large businesses, understanding whether your customer is a registered reporting entity — and what their reported payment times are — can inform credit decisions.
The scheme was reviewed by Dr Craig Emerson in 2023, with recommendations for stronger enforcement and a potential maximum payment term cap for large businesses paying small suppliers. Legislative reform is ongoing — check the current position with the Department of Treasury.
Documenting your terms correctly
Payment terms are only enforceable if they form part of the contract between you and your customer. The requirements for terms to be contractually binding are:
- The terms must be communicated before or at the time of contracting — terms stated only on the invoice, after the goods or services have been ordered, may not bind the customer to those terms.
- The customer must have been given a reasonable opportunity to read and understand the terms.
- The terms should be acknowledged in writing where possible — a signed credit application, a signed terms-of-trade document, or at least an email confirming the agreed terms.
A terms-of-trade document that clearly states payment terms, interest on overdue accounts, recovery costs and the circumstances in which credit can be withdrawn is the strongest protection a creditor can have.
Interest on overdue accounts
Interest on overdue commercial invoices is only recoverable if there is a contractual basis for it — usually a clause in your terms of trade or a signed credit agreement that specifies the rate and when it begins to accrue. Without that contractual basis, there is generally no statutory right to interest on unpaid commercial invoices (unlike court-ordered judgment debts, which attract statutory interest).
Where your terms provide for interest, the rate must be reasonable and clearly stated. Courts have generally been willing to enforce contractual interest rates stated in commercial terms-of-trade documents, provided they are not unconscionable.
Which terms are right for your business?
The right payment terms depend on your sector, your customers and your cash-flow position. Key questions:
- What terms do your competitors offer? If the market standard is 30 days, offering 14 days may lose you business.
- What is your cash-flow tolerance? The gap between when you pay your own suppliers and when your customers pay you determines how much credit you can sustain.
- Who are your customers? A government agency may have a standard 30-day accounts payable cycle regardless of what terms you specify. A small business may be more flexible. A large corporate will impose its own terms regardless of yours.
- What are the consequences of non-payment? Shorter terms mean overdue accounts are identified and acted on sooner.
Whatever terms you choose, document them properly, communicate them before work begins, and build an escalation process for accounts that go over.
This guide is general information only. It does not constitute legal or financial advice. Payment terms and the Payment Times Reporting Scheme are subject to legislative change — obtain current advice for your specific situation.