The right payment terms for your small business depend on your industry norms, your cash position, and your negotiating power – but for most UK SMEs, 14 to 30 days strikes the best balance between staying competitive and keeping cash flowing.
Payment terms are one of those things that many small businesses set once and never revisit. You copied what your first competitor did, or your accountant suggested 30 days, and that has been your default ever since. But the terms you set have a direct, measurable impact on your cash flow and your Days Sales Outstanding. Getting them right – and communicating them clearly – is one of the simplest levers you can pull.
The Common Options
Immediate / Cash on Delivery (COD). Payment is due when the goods or services are delivered. Common in retail, hospitality, and one-off consumer transactions. Rare in B2B unless you are dealing with a new, untested customer or very small amounts.
7 days. Aggressive but not unreasonable for small, recurring invoices. Some freelancers and micro-businesses use 7-day terms successfully, particularly for repeat clients where the amounts are modest and the work is straightforward.
14 days. Increasingly popular among small businesses and professional services firms. It sets a clear expectation of prompt payment without being so tight that it creates friction. Many accounting software defaults have shifted from 30 to 14 days, reflecting this trend.
30 days (Net 30). The most widely used standard in UK B2B commerce. It is familiar to accounts payable teams, aligns with monthly payment cycles, and is considered reasonable by most customers. For many businesses, 30 days is the default for good reason.
60 days (Net 60). Common in industries with longer supply chains or where the buyer has significant negotiating power. Construction, manufacturing, and large corporate customers frequently expect 60-day terms. For a small supplier, accepting 60-day terms means financing two months of work before seeing any cash.
90 days or longer. Rare outside of specific sectors, and usually a sign that the buyer is using their bargaining power to extract favourable terms at your expense. The average payment delay in the UK is already 32 days on top of agreed terms – so 90-day terms with a 32-day delay means you could wait four months to be paid.
What Is Standard in Your Industry?
Industry norms matter because deviating too far from them creates friction. You can set whatever terms you like, but if every other supplier in your sector offers 30 days and you demand payment on delivery, you will lose business to competitors.
Professional services (consulting, marketing, legal, accounting): Typically 14 to 30 days. Shorter terms are becoming more common, especially for smaller firms. Monthly retainer arrangements often specify payment on or before the first of the month.
Construction and trades: 30 to 60 days is standard, though late payment is particularly acute in construction, where payment delays average roughly 38 days beyond the agreed terms. Stage payments and payment applications are common on larger projects.
Manufacturing and wholesale: 30 to 60 days is the norm, reflecting the time needed for goods to move through the supply chain. Established supplier relationships may have fixed monthly payment runs.
Retail: Immediate payment or short terms. If you supply goods to retailers, their terms may be 30 to 60 days, but you are typically paid on receipt if you are the retailer selling to end customers.
Technology and SaaS: Annual or monthly subscriptions are often paid upfront or by direct debit, which effectively means immediate terms. Project work follows professional services norms of 14 to 30 days.
Factors to Consider When Setting Your Terms
Your own cash position
This is the most important factor and the one most often ignored. If you have healthy cash reserves and a low Cash Conversion Cycle, you can afford to offer generous terms. If you are already stretched, offering 60-day terms to win a contract could create a dangerous cash flow gap.
Before agreeing to extended terms, run the numbers. How much working capital will you have tied up in that customer’s unpaid invoices? Can you cover your own costs while you wait? Use the DSO Calculator to see how a new customer on longer terms would affect your average collection period.
Industry norms
As discussed above, deviating significantly from what customers expect creates resistance. That does not mean you cannot be shorter than the norm – it means you need to communicate clearly and be prepared to justify your terms.
Customer negotiating power
A large customer placing a substantial order has leverage. A new customer placing a small first order does not. Your terms should reflect this reality. It is reasonable to offer your best terms to your most valuable, most reliable customers – while keeping tighter terms for new or smaller accounts.
The size and nature of the work
A £500 one-off job justifies different terms from a £50,000 project delivered over three months. Larger or longer engagements often warrant milestone payments or staged billing rather than a single invoice at the end. This protects both parties and keeps cash flowing throughout the project.
How to Communicate Your Terms
Ambiguity about payment terms is one of the most common causes of late payment. Make your terms impossible to miss:
In your proposal or quote. State payment terms clearly before work begins. “Our standard payment terms are 14 days from invoice date” should be as prominent as the price. If the customer signs your proposal, they have agreed to the terms.
On every invoice. Include the payment terms, the invoice date, and the due date explicitly. Do not make the customer calculate when payment is due. “Payment due: 15 March 2025” is clearer than “Payment terms: 30 days.”
In your terms and conditions. Your standard T&Cs should specify your default payment terms and what happens if payment is late – including your right to charge statutory interest under the Late Payment of Commercial Debts Act 1998.
Verbally, when starting a new relationship. A brief conversation about payment expectations at the start of a new engagement avoids misunderstandings later. Ask the customer how their payment process works – when their payment run is, who authorises payments, what information they need on invoices. This is practical, not confrontational.
Offering Different Terms to Different Customers
There is no rule that says you must offer the same terms to everyone. Differentiated terms are common and sensible:
New customers: Shorter terms (7 to 14 days) or even payment upfront for the first order. This reduces your risk while the relationship is untested. You can frame this positively: “We move to our standard 30-day terms after the first project.”
Established, reliable customers: Standard terms or slightly more generous terms as a reward for a good track record.
Large, powerful customers: They may demand 60-day terms. You have to decide whether the size of the opportunity justifies the cash flow impact. If you accept longer terms, factor the cost of financing into your pricing.
High-risk customers: Shorter terms, deposits, or milestone payments. If credit checks reveal a history of late payment or poor financial health, protect yourself accordingly.
Payment Terms and Pricing
Your payment terms and your pricing are connected, even if most businesses do not make the link explicit.
Shorter terms justify lower prices because you get your money sooner, reducing your financing costs and risk. Conversely, if a customer wants 60-day terms instead of 30, you are effectively lending them money for an extra month. That has a cost, and it is reasonable to reflect it in your pricing.
Some businesses offer an explicit early payment discount – for example, 2% off if paid within 10 days. This makes the trade-off visible and gives customers an incentive to pay faster.
Even without a formal discount structure, you can use pricing to manage terms. “Our price at 30-day terms is £X. If you need 60-day terms, the price is £Y.” The difference does not need to be large – even 2% to 3% covers the cost of the additional wait and signals that extended terms are not free.
How to Change Existing Terms Without Losing Customers
If your current terms are too generous and you want to tighten them, the key is communication and a reasonable transition period.
Give notice. Do not surprise customers with new terms on their next invoice. Write to them explaining the change and giving a clear start date – ideally at least one billing cycle away. “From 1 January, our standard payment terms will be 14 days instead of 30.”
Explain the reasoning. You do not owe a detailed justification, but a brief explanation helps. “To manage our cash flow and continue providing the level of service you expect, we are aligning our terms with industry standards.” Most customers will accept this.
Be prepared to negotiate. Your best customers may push back. Be willing to discuss it. Perhaps you keep them on 30 days while moving new customers to 14. Perhaps you offer a small incentive for accepting the change. Flexibility with your most valuable accounts is sensible – as long as it does not undermine the entire exercise.
Apply new terms to new customers immediately. Even if transitioning existing customers takes time, every new customer from today should be on your preferred terms. Over time, your customer base naturally shifts.
The Bottom Line
Payment terms are not administrative detail – they are a cash flow decision. Every extra day you give a customer to pay is a day your money sits in their account instead of yours. In an environment where 90% of UK businesses face payment delays and the average payment is already 32 days late beyond agreed terms, the terms you set and enforce are one of your most important financial controls.
Choose terms that match your industry, reflect your cash position, and are communicated so clearly that there is no room for ambiguity. Review them annually. And do not be afraid to tighten them – the short-term discomfort of that conversation is far better than the long-term pain of funding someone else’s business with your cash.
For strategies on bringing your actual collection times in line with your stated terms, see How to Reduce Your DSO. For the other side of the equation – managing when you pay your own suppliers – read How to Extend DPO Without Damaging Supplier Relationships.
This article is for informational purposes only and does not constitute financial or legal advice. Payment terms and their enforcement may have legal implications, particularly in regulated industries. If you are unsure about setting or changing your payment terms, consider speaking with a qualified accountant or solicitor.