The Procurement Glossary » Payment Terms

Payment Terms

Finance & Payments

Also known as: Net Terms

Definition

The agreed conditions for when and how a buyer pays a supplier, such as 'net 30 days' from invoice date.

Explanation

Payment terms affect both parties' cash flow: longer terms help the buyer's working capital but strain suppliers. They are a real negotiation lever, balanced against early-payment discounts and supplier health.

Example

Net 30 terms mean the buyer pays within 30 days of the invoice date.

Related terms

• Net Terms (Net 30 / 60 / 90) — Payment terms specifying the number of days a buyer has to pay in full after the invoice date.
• Early Payment Discount — A discount a supplier offers for paying an invoice ahead of its due date, such as '2/10 net 30'.
• Working Capital — The money tied up in day-to-day operations — broadly current assets (inventory, receivables) minus current liabilities (payables).
• Days Payable Outstanding (DPO) — The average number of days a company takes to pay its suppliers.

Related concepts

• Procure-to-Pay (P2P) — The end-to-end operational buying cycle — from requisition and approval to purchase order, receipt, invoice matching and payment.

Frequently Asked Questions

What is Payment Terms?

The agreed conditions for when and how a buyer pays a supplier, such as 'net 30 days' from invoice date. Payment terms affect both parties' cash flow: longer terms help the buyer's working capital but strain suppliers. They are a real negotiation lever, balanced against early-payment discounts and supplier health.

Can you give an example of Payment Terms?

Net 30 terms mean the buyer pays within 30 days of the invoice date.

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