Payment Terms - Explained

Summary

This video explains common payment terms used in business invoices, outlining key concepts like 'payment in advance' and 'net 30'—where payments are due within a specified number of days. It covers various terms including 'end of month,' 'cash on delivery,' and installment payments, as well as discounts based on early payment or order size. Additionally, it touches on partial payments, rebates, and offsets against owed amounts, providing a comprehensive overview for businesses to understand their payment requirements effectively.

Takeaways

• 💳 Pia stands for 'Payment in Advance,' requiring payment before goods or services are delivered.
• 📅 'Net 30/60/90' indicates payment is due within 30, 60, or 90 days, often with potential discounts for early payment.
• 📆 'EOM' means payment is due at the end of the month in which the invoice is issued.
• 🗓️ '15 MFI' indicates payment is due on the 15th of the month following the invoice date.
• 💵 'COD' stands for 'Cash on Delivery,' requiring payment at the time of delivery, typically not strictly cash.
• 📦 'Cash before shipment' mandates full payment before goods are shipped.
• 💸 'Cash with order' requires payment before the order is processed.
• 📜 'Dating' refers to invoicing after the receipt of the order, usually in ongoing business relationships.
• 📉 'Accumulation discounts' are based on the size of the order, offering discounts for larger purchases.
• 🔄 A 'partial payment discount' allows upfront payment with the rest deferred, often with a discount.
• 💰 'Rebates' are returned amounts for purchases, incentivizing buying specific items.
• ⚖️ 'Contra' invoices offset amounts owed, reducing the total payable to the seller.

Q & A

What does the acronym 'PIA' stand for in payment terms?

PIA stands for 'Payment in Advance,' which requires payment prior to the shipment or delivery of goods or services.

What does 'Net 30' mean in payment terms?

'Net 30' means that payment is due within 30 days of the invoice date. It often comes with discounts for early payment, such as '1% 10 Net 30.'

What is the significance of 'EOM' in payment terms?

'EOM' stands for 'End of Month,' indicating that the payment is due at the end of the month in which the invoice is issued.

What does '15 MFI' refer to in invoice terms?

'15 MFI' means that payment is due by the 15th of the month following the invoice date.

What does 'COD' stand for and what does it mean?

'COD' stands for 'Cash on Delivery,' meaning that payment must be made at the time of delivery of goods or services.

How does 'Cash Before Shipment' differ from 'Payment in Advance'?

'Cash Before Shipment' requires payment before the goods are shipped, similar to 'Payment in Advance,' but is often used specifically for orders that are manufactured.

What is meant by 'Cash with Order'?

'Cash with Order' means that payment must be made before the order is processed, meaning no action is taken until payment is received.

What are 'accumulation discounts'?

Accumulation discounts are specific discounts based on the size of the order, often expressed as a percentage or per-unit discount.

What is a 'partial payment discount'?

A partial payment discount allows the buyer to make a partial payment up front with the remainder deferred to a later date, usually with a discount on the initial payment.

What is a rebate in the context of payment terms?

A rebate is an amount returned to the buyer after a purchase, often as a promotional incentive for buying specific items.