Setting Customer Payment Terms for Your Limited Company

What counts as a payment term?

A payment term is any condition governing when and how a customer must pay: the due date (e.g. net 30 from invoice date), accepted payment methods, currency, and any early-payment discounts or late-payment charges. Together these form part of your contract with the customer.

For B2B transactions in the UK, the Late Payment of Commercial Debts (Interest) Act 1998 implies a 30-day payment period if nothing is agreed in writing. You may shorten or lengthen that period by contract, but courts can void terms that are grossly unfair to the creditor.

Standard approaches UK companies use

Net 30 (30 days from invoice date) is the most common B2B standard. Some sectors operate on shorter cycles — professional services often invoice on 14-day terms — while large retail or manufacturing buyers may push for 60 or 90 days. Consider your sector norm, but do not simply accept a buyer's standard without assessing the impact on your working capital.

• Net 14 / Net 30 / Net 60 — calendar days from invoice date
• End-of-month (EOM) — due on the last day of the month following invoice
• 2/10 net 30 — 2% discount if paid within 10 days, otherwise full amount due at 30
• Proforma / advance payment — full or partial payment before delivery

Making terms legally enforceable

Terms must be communicated and agreed before the contract is formed — not printed on the back of an invoice after the fact. The clearest approach is to include payment terms in your written contract or order confirmation and require a signature or written acceptance. For ongoing customers, a signed credit account application works well.

Your terms should also specify: the entity that owes the money (company name and registered number), your own company's bank details, the currency, and what triggers the invoice date. Courts have reduced or denied statutory interest claims where terms were ambiguous or not communicated in advance.

Charging interest and compensation on late payments

Under the 1998 Act, once a B2B invoice is overdue you are entitled to claim statutory interest at 8% per annum above the Bank of England base rate, calculated daily from the date the debt became due. You may also claim fixed compensation of £40 (invoices up to £999.99), £70 (£1,000–£9,999.99), or £100 (£10,000+), plus reasonable debt recovery costs.

You do not need to state this in your contract — the right is implied by statute — but including it in your terms reminds customers it applies and can prompt earlier payment.