What Are Payment Terms?

How payment terms works

Payment terms set five things in writing: a deposit (commonly 25-50% upfront), a milestone schedule, due dates (Net-15 means payment is due 15 days after the invoice date, Net-30 means 30 days), accepted methods, and a late-payment penalty (typically 1.5% per month). You define these in the proposal and lock them into the contract before work begins. They apply to every paid engagement, whether you bill a flat $6,000 project fee or a $150 hourly rate. The deposit protects you against a client who vanishes; the milestone schedule keeps cash flowing on long projects; the due date controls how long your money sits in the client's account instead of yours. A 50% deposit on a $6,000 project puts $3,000 in your account on day one and caps your exposure at $3,000. The practical implication for pricing is direct: Net-30 terms mean you finance the client for a full month, so you either price that cost in or shorten the terms. A freelancer charging $8,000 on Net-45 with no deposit carries $8,000 of risk for six-plus weeks; the same freelancer on 40% upfront and Net-15 carries far less and gets paid faster. Tighter terms function as a discount you grant; looser terms are a cost you absorb. State the terms numerically on every invoice so there is no dispute about when the clock started or what penalty applies.