Accounting 101: Payment Terms or Invoice Terms. When am I supposed to Pay that?!?

Even if you're not in the accounting field, you may simply hear "terms of Payment" or "Payment terms" or "Invoice Terms" from friends or family members who are in business or working as accountants or bookkeepers.

So to get a low-down on the said terms (sorry I can't seem to let go of the term "terms"... hahaha!) here's a simple explanation of the most commonly used payment terms or terms of payment for purchases:

CBD or Cash Before Delivery – means exactly as it says, we need to pay for the item/s before they can be delivered. In other words, it’s a prepaid purchase, whether using cash or check. If using check, the check date is always BEFORE the delivery and to be given to the supplier BEFORE delivery of the item/s.

COD or Cash ON Delivery – probably the most commonly heard of all. It simply means, there will be an exchange between the company or buyer and the supplier, upon delivery, the cash or check will be immediately given to the supplier. If using check, the check date may be on or before delivery, but never after.
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PDC 7/30/45/60 Days – means a check is prepared immediately upon the approval of the Purchase Order (PO) and the said check is dated 7/30/45/60 days from the PO date. The check may be given on or before delivery, but the check date depends on the PO date. If what we mean is that the purchase is due for payment within 30 days, this is NOT the term we should use, instead we should use 30 Days Term or Nett 30 Days.

7/15/20/30/45/60/90 Days Term – as mentioned, this means that the check need not be prepared immediately, but the purchase or payable should be paid within 7/15/20/30/45/60/90 days from date of receipt or invoice date whichever is later.

Nett 7/15/20/30/45/60/90 Days   means the entire amount of the purchase is due within the said number of days. This is commonly used in combinations like 2%, 10 Days/Nett 30 which really means that if the account is paid within 10 days, you will be given 2% discount, if you choose not to pay early, then the whole amount is due within 30 days from purchase yet.

So hopefully, from this spur of the moment entry, I may have shared something of use. ^_^


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