Do you run a small business or work as a self-employed freelancer? If so, then most of your life is taken up by invoices.
You’re continually creating them and sending them out to clients after you’ve finished work. As such, you’re probably sick to death of clients taking ages to pay you.
There’s nothing worse than finishing a job, then having to wait weeks before you actually get paid. It’s terrible, particularly when you have bills to pay and need to know when the money is coming in.
The best way to avoid this is by setting up payment terms and conditions before you undertake any work. And if you want to make sure you get paid as soon as possible, one thing you could do is put a label on your invoice that says ‘due on receipt’.
Now, you may have never heard of this term before, or it’s possible you’ve seen it on sample invoices but not really understood what it means.
Don’t worry, we've got you covered. Here's the 101 on "due on receipt".
What does Due on Receipt mean?
It’s actually a straightforward term to understand when you deconstruct what it means. Due on receipt essentially refers to the payment being due as soon as the client receives the invoice.
Here, you’re being very forward and basically demanding that they get the payment ready as quickly as possible. Ideally, you want the money on the same day, but the term usually means they have to pay you by the next business day.
Why Should You Mark Invoices Due on Receipt?
Naturally, many of you will probably see this term and think it’s absolutely life-changing. Wouldn’t it be brilliant to get fast payments all the time after completing work?
It would, but this payment term is normally not used after every single job. Typically, there are a few situations where the due on receipt term is mostly used.
Primarily, it works best if you have a new client that just wants you to do one job, then this is the perfect scenario to use this term.
They’re not interested in repeat business, they just want your service once, and that’s it. By labeling your invoice as payment due on receipt, you ensure the money gets to you quickly, and both parties can get on with their lives.
Technically, nothing is stopping you from putting this term on every invoice you produce. However, this may not be very beneficial, as we’ll discuss when we look at the pros and cons.
Advantages of Due on Receipt
It’s clear what the most significant advantage of this invoice term is. When you use due on receipt, the money can come into your account almost instantly.
These days, clients can literally make payments as soon as they receive your invoice. They just log into online banking or take out their smartphone, and it’s with you in minutes.
By getting quick payments, you never have to worry about waiting around for your next ‘payday’. For people that really need to get paid for their work because of bills or other payments that are due, this is extremely helpful.
Arguably the worst thing about sending out invoices and waiting for the money is that you easily forget about certain payments after a while.
Some clients could take months to pay you, which means you don’t even remember that you sent an invoice in the first place.
A lot of the time, this leaves freelancers with gaps in the books as they notice that certain things weren’t paid. It can take ages to sort through your emails and documents until you find the invoice and how much you’re owed.
Then, it takes even more time to contact the client and demand the money. With the due on receipt method, this is never an issue. The money comes in within a business day, so you can keep your accounts in check and never worry about clients getting away without paying you because you forgot.
Disadvantages of Due on Receipt
Unfortunately, there are a few things that present potential issues with this invoice term. For one, how can you guarantee that a client can and will pay you within a business day?
If you send an invoice with due on receipt to a client that’s waiting to get paid themselves, then they have no way of actually making the payment. You’ll have to wait until they get the money and then pay you.
This isn’t an issue if you make sure the due on receipt is known by both parties before you do the work. If you just put it on there and assume they’ll pay on time, then you can run into issues like this one. But, if you inform them beforehand, they may tell you they can’t agree to it as they need to wait for their money to come in.
Another thing to consider is your clients might want to review the work you’ve done for them before making the final payment. This is common with freelance writers, contractors, and other service-based work.
You can’t always submit work and demand money right away. Some clients need time to look over everything and then make suggestions for amendments. So, you’ll have to go back and do any requested revisions before they eventually pay you. As a result, the whole due on receipt payment term is pretty much void at that point.
Should You Use Due on Receipt?
After viewing the pros and cons of this term, you’re probably questioning whether or not it’s worth using.
We believe that the secret is knowing when to use it. As we touched upon earlier, it’s very useful when invoicing for one-off projects. Or, a project where you know there isn’t going to be any amendments or edits involved.
Having said that, it’s crucial that you establish the payment terms of your invoice in your initial contract. When they’re ordering something from you, there has to be a dialogue where you inform them that you request payment via invoices and that you expect payment on receipt of said invoice.
This is vital as it lets them know the terms of your invoice before they order anything. As a consequence, they have the chance to disagree with these terms and tell you that they’re not okay with it.
So, you both have to come up with payment terms that suit you both - which could include a portion of the payment being due on receipt, with the rest coming after they’ve either been paid or requested edits.
We find that this stops instances when you send an invoice labeled ‘due on receipt’ but don’t get the money in the desired timeframe.
It prevents disputes, which can often stop you from getting repeat business from a client, or lead to negative reviews for your service.
Are there better invoice terms out there? Possibly, it depends on the task at hand and the client in question.
A lot of businesses and freelancers tend to use the Net D payment term, which lets you set the number of days in which the invoice can be paid.
This doesn’t give you the instant payment of due on receipt, but it will help you keep control of your accounts by knowing the latest date that you’ll get paid.
Due on Receipt: A Summary
So, to conclude, due on receipt is an invoice term that informs clients that you expect payment within a business day. It’s used as a way to speed up payments, so you aren’t stuck waiting around for months before getting paid.
As a result, it benefits freelancers and businesses that need money right away, but it does have a few downsides as well. We recommend that you don’t label all invoices like this, and always establish terms with clients before you agree to any work!
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