Payment period

The payment period is the time frame a customer has to pay an invoice or a receivable. The period is set by the company and is typically stated on the invoice as a payment deadline. The payment period is an important element in both cash flow management and credit policy because it affects how quickly the company receives its money.

What does a payment period cover?

A payment period usually starts on the invoice date and runs until the due date. In some cases, other start dates are used, such as the delivery date or the date of signing an agreement.

The length of the period often depends on:

industry and market
the agreement between the buyer and seller
company credit policy
the customer's previous payment history

A short payment period strengthens liquidity, while a longer period can be a competitive parameter vis-à-vis customers.

Payment period and payment behavior

When companies work with payment periods, they typically also look at customer behavior. A customer who historically pays late or only responds to reminders should often have a shorter payment period to limit the risk.

Conversely, stable and reliable customers in some industries may be granted longer periods as part of the collaboration.

Typical lengths of payment periods

Although there are no fixed rules, these periods are often used in practice:

Cash payment – payment upon delivery
Net 8 days – popular in certain service industries
Net 14 days – used for new or smaller customers
Net 30 days – standard in many business relationships

If no payment period has been agreed, the Interest Act stipulates that payment must be made no later than 30 days after receipt of the invoice.

Payment period and risk

The choice of payment period has a direct impact on the company's risk. A longer period means:

several days without payment
greater likelihood of delay
greater exposure to the customer's financial problems

Companies should therefore regularly consider whether the payment period matches the customer's current financial situation. In some cases, shorter payment terms, prepayment, or a deposit may be necessary.