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Why it's important to clarify payment terms on invoices

For this article, a little case study is useful to illustrate: today we were contacted by a user who had been asked by their customer to send an invoice for which they would provide cash payment.

In these cases, it (literally) pays to specify the payment terms on the invoice itself to avoid any confusion or miscommunication.

In the invoice templates provided by Debitoor, there is a field in which you can add any specifics regarding the order, the services, the payment method, or any other important information your customer needs to know that should be included in the official document.

Managing your invoice status

A completed invoice will appear in your invoice list as ‘Unpaid’. In the cases of cash payment on delivery, users commonly mark the invoice as ‘Paid’, even though they have not yet received the cash payment (for example, POD - payment on delivery).

Expecting cash payment on delivery? Here's how you can handle it in Debitoor invoicing software

But take care with adding payment terms and be as specific as possible. Poorly stated terms can be equally misleading and unclear - causing difficulties later on.

Risks of unclear payment terms on an invoice

Marking an invoice as paid if you have not yet received payment on it can cause unnecessary complications in the event that something goes wrong with the order, delivery, or communication with your customer.

If a customer defaults on a payment, it then wouldn’t be possible to contest if the invoice has been marked as ‘Paid’. And depending on your accounting method (cash accounting or accrual accounting), you might liable for including this amount in your VAT return even if you still have not received payment.

So what to do? Common sense would dictate not sending the invoice before the payment has been received. But there always seem to be cases that somehow fall outside of the modus operandi.

Or perhaps you find yourself in an endless cycle of negotiation over the delivery of the product or service, when the invoice should be issued, and when payment should be made.

There are options. A proforma invoice has no fiscal significance, but provides the same information as an invoice. Therefore, if a customer does not pay the proforma, there is no need for it to be included in a VAT return.

Proforma invoices and Debitoor

In Debitoor invoicing software, you can create a proforma invoice using our simple invoice templates. By creating a new invoice and saving it as a ‘Draft’ it can be sent and/or printed as a proforma invoice, enabling you to provide your customers with an invoice without the need to complete and enter payment before payment is received.