Invoice Terms Explained: A Simple Guide

Invoice terminology can be confusing, especially when you're just starting out. Let's break down what all these terms actually mean in plain English.

Payment Terms

Due on Receipt

What it means: Pay immediately when you get the invoice.

When to use it:

New clients

Small amounts (under $200)

When you need cash flow quickly

Reality check: "Immediately" usually means within 2-3 days. Very few people actually pay the same day.

NET 7, NET 15, NET 30

What it means: Pay within X days from the invoice date.

NET 7 = 7 days

NET 15 = 15 days

NET 30 = 30 days

Example: Invoice dated October 1st with NET 15 terms = Payment due by October 16th.

What's standard:

Freelancers often use NET 7 or NET 15

Larger companies typically expect NET 30

Some government contracts are NET 60 or even NET 90 (ouch)

2/10 NET 30

What it means: Get a 2% discount if you pay within 10 days, otherwise full payment is due in 30 days.

Example: $1,000 invoice

Pay within 10 days: $980

Pay within 30 days: $1,000

Reality: This is more common in B2B wholesale/manufacturing. As a freelancer or small service business, you probably won't use this.

Invoice Status Terms

Draft

The invoice exists but hasn't been sent yet. You're still working on it or waiting to send it.

Sent / Outstanding

The invoice has been sent to the client and is waiting to be paid.

Paid

Money received. The best status.

Overdue

Payment deadline has passed and you haven't been paid yet. Time to follow up.

Void

The invoice was cancelled or has been replaced by a new one. Usually happens when you made a mistake or terms changed.

Partially Paid

Some of the money has been received, but not the full amount. Common with payment plans.

Invoice Number Systems

Every invoice needs a unique number. Here are common systems:

Sequential:

INV-001, INV-002, INV-003...

Simple and works for most people

By Year:

2025-001, 2025-002...

Helps you track which year an invoice was from

By Client:

CLIENT-001, CLIENT-002...

Useful if you have few clients with lots of invoices each

By Date:

20251019-01 (October 19, 2025, first invoice that day)

Good if you send many invoices per day

The rule: Pick any system and stick with it. The important thing is that each number is unique and sequential.

Line Item Terms

Unit Price

The price for one item or hour.

Example: $50/hour is the unit price. If you worked 10 hours, total is $500.

Quantity / Qty

How many units you're charging for.

Example: Quantity: 10 hours × Unit price: $50 = $500

Subtotal

The total before taxes and any discounts.

Tax / VAT / GST

Sales tax (varies by location)

VAT = Value Added Tax (Europe)

GST = Goods and Services Tax (Canada, Australia, etc.)

Sales Tax (US, varies by state)

Discount

Amount reduced from the subtotal. Could be percentage-based or a fixed amount.

Example:

Subtotal: $1,000

Discount: 10% ($100)

New subtotal: $900

Total / Amount Due

The final amount the client needs to pay, including taxes and after discounts.

Payment Method Terms

Bank Transfer / Wire Transfer / ACH

Money sent directly from their bank to yours.

Pros: No fees (usually), secure

Cons: Can take 1-3 business days

PayPal / Venmo / Cash App

Payment apps that transfer money instantly.

Pros: Fast, convenient

Cons: 2-3% fees on business transactions

Credit Card / Debit Card

Payment via card.

Pros: Instant payment, client can use points/credit

Cons: 2.5-3.5% processing fees

Check / Cheque

Paper check mailed and deposited.

Pros: No fees, some clients prefer it

Cons: Slow (7-14 days), can bounce

Payment Plan Terms

Deposit / Down Payment

Money paid upfront before work begins.

Typical amounts:

25-50% for new clients

25% for repeat clients

Sometimes 100% for very small projects

Milestone Payment

Payment tied to completing specific project phases.

Example: Website project

25% on contract signing

25% on design approval

25% on development complete

25% on launch

Retainer

Fixed monthly amount for ongoing work.

Example: $2,000/month for 20 hours of design work. Client knows the cost upfront, you know the income is consistent.

Installment

Breaking a large payment into smaller chunks over time.

Example: $3,000 project paid as:

$1,000 on October 1st

$1,000 on November 1st

$1,000 on December 1st

Late Payment Terms

Late Fee / Interest

Additional charges if payment is late.

Common structures:

5% after 30 days overdue

1.5% per month (18% annually)

Flat fee ($25-50) for small invoices

Grace Period

Extra time before late fees kick in.

Example: "NET 15 with 5-day grace period" means payment is technically due in 15 days, but late fees don't start until day 20.

Payment Reminder

A friendly nudge sent before or on the due date.

Final Notice

The last reminder before you stop work or take further action.

Currency Terms

Base Currency

The currency you're invoicing in (USD, EUR, GBP, etc.).

Exchange Rate

If your client pays in a different currency, the conversion rate matters. Some invoicing software handles this automatically.

Pro tip: Specify the currency clearly. "$500" could mean USD, CAD, AUD, etc.

Scope-Related Terms

Scope of Work

What's included in the price you're charging.

Out of Scope

Work that's NOT included and would cost extra.

Example:

In scope: 3-page website

Out of scope: Additional pages ($200 each)

Revision

Changes or tweaks to completed work.

Common limits:

"Includes 2 rounds of revisions"

"Additional revisions: $50/hour"

Rush Fee

Extra charge for expedited work.

Example: "Standard turnaround: 7 days. Rush delivery (48 hours): +25%"

The Bottom Line

You don't need to memorize all of this. Here's what matters most:

1. Choose clear payment terms (NET 7, NET 15, or Due on Receipt)

2. Number your invoices consistently (any system is fine)

3. Be specific about what you're charging for (no vague descriptions)

4. State your currency (especially if you work internationally)

5. Include a due date (don't leave it vague)

Everything else you can look up when you need it.

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