Payment terms are the contractual conditions that define when a supplier invoice falls due, from which reference date the delay is counted, and what discount or penalty applies around that date.
Payment terms combine three components that are frequently treated as one. The duration sets the number of days granted. The reference date fixes what starts the clock: the invoice date, the goods receipt date, or the end of the month of issue. The incentive adds a discount for paying early or a penalty for paying late.
Four formulations cover most supplier contracts:
- Net 30: the full amount falls due 30 days after the invoice date
- Net 60 EOM: due 60 days after the end of the month of issue
- 2/10 net 30: a 2 percent early payment discount if paid within 10 days, full amount on day 30 otherwise
- Payable on receipt: due immediately, with no credit period
Payment terms are not unlimited. In the European Union, Directive 2011/7/EU caps business-to-business terms at 60 days unless both parties expressly agree otherwise and the extension is not grossly unfair to the creditor. Several member states apply shorter national ceilings, so the binding limit depends on the supplier country rather than on buyer policy.
Payment terms describe the contract. Days payable outstanding measures what happened. A company with a 45 day contractual term and a DPO of 62 days is not financing itself, it is paying late, and the gap is usually caused by approval delay. Phacet removes that delay by validating supplier invoices on arrival.
