Payment terms
The agreed conditions for when and how a supplier's invoice must be paid, most commonly expressed as a number of days after the invoice date.
Payment terms set out when an invoice is due and on what conditions. The most common form is net terms, such as 30 or 60 days from the invoice date, sometimes with an early settlement discount or a stated rate of interest on late payment. Where no terms are agreed, UK law sets a default of 30 days.
Terms are a negotiation over working capital. Longer terms help the buyer's cash position at the supplier's expense, and large buyers have historically been able to impose them. That is changing: the Fair Payment Code and payment practices reporting put buyers' terms in public view, and the Commercial Payments Bill proposes a statutory cap on most payment terms.
Agreed terms and actual behaviour are not the same thing. A buyer on 30-day terms that pays in 55 days has, in practice, 55-day terms. Payment behaviour data measures what actually happens, which is what a supplier needs to know when deciding who to extend credit to.