A payment term is the period agreed between invoicing and the latest date full payment is due — the central payment condition on every invoice. How long it is allowed to run, what applies when nothing was agreed, and what a long payment term ties up in cash, are the three questions this guide answers.
For the supplier, a payment term is both a sales lever and a liquidity risk; for the customer, it is interest-free financing. Both sides of that coin belong in the same place in the end: the company’s cash flow forecast.
What is a payment term?
A payment term is the contractually agreed period between the invoice date (or receipt of the invoice) and the date by which payment must be made at the latest. It normally appears directly on the invoice as a payment condition.
| Wording on the invoice | What it means |
|---|---|
| “Due immediately, no deduction” | Not a payment term in the strict sense — due on receipt of the invoice. |
| “Net 14 days” | Full payment due by day 14, no deduction. |
| “2% discount within 10 days, net within 30 days” | 30-day payment term, with a shorter discount window as an incentive. |
These three wordings are examples of common practice, not a market survey — which payment term is customary in a given industry or between two trading partners depends on negotiating leverage, the supply chain and the product. The term is normally fixed during the payment-conditions stage of accounts receivable management, before the first invoice is ever issued.
No agreement: when is an invoice due?
If no payment term was explicitly agreed, German default law applies: under BGB (Bürgerliches Gesetzbuch, the German Civil Code) § 271(1), the creditor can demand immediate performance if no time was fixed and none can be inferred from the circumstances — the debtor must pay immediately in turn. An invoice with no stated payment term is therefore due immediately by default, not automatically after some customary number of days.
In practice, few businesses rely on this default rule: stating an explicit payment term removes any doubt about when a payment becomes overdue — and therefore when collections are allowed to start.
Germany’s legal limit on payment terms
Between businesses (B2B), payment terms can be freely negotiated in Germany — but not without limit. BGB § 271a(1) sentence 1 sets a cap: an agreement under which a monetary claim only becomes payable more than 60 days after the debtor receives the goods or service is valid only if it was explicitly agreed and does not grossly disadvantage the creditor.
In practice, that means a term of more than 60 days accepted only tacitly — for example through terms and conditions that were never explicitly negotiated — stands on shaky legal ground. An explicitly agreed, materially longer term can still be valid if it is objectively justified and does not unreasonably disadvantage the creditor.
Legal note: This section summarizes the statutory default rule under German law and is not legal advice. Whether a specific payment-term clause is valid depends on the facts of the contract — consult a lawyer qualified in German law if this matters for your case.
Payment term vs. early-payment discount
Payment terms and early-payment discount windows are often confused, but they are two different things. The payment term is the outer deadline by which the full invoice amount must be paid. The discount window (in German, the Skontofrist) is a shorter, optional period within that payment term during which a price reduction applies if the customer pays early.
Whether taking the discount makes sense from the customer’s side — or offering it makes sense from the supplier’s side — is its own calculation: the guide on calculating an early-payment discount walks through the formula, a worked example, and the effective annual interest rate an unused discount represents.
What a longer payment term costs
A payment term is not just a payment condition — it is a financing decision. Every day a receivable stays open is a day capital is tied up in working capital instead of sitting in the bank — exactly what DSO measures: trade receivables divided by revenue for the same period, multiplied by the number of days.
The same formula directly implies what a single extra day of payment term costs: roughly annual revenue divided by 365 — the day’s worth of revenue the company finances in advance for every additional day of term.
| Figure | Example value |
|---|---|
| Annual revenue | €7,300,000 |
| Daily revenue (÷ 365) | €20,000 |
| Payment term extended from 14 to 30 days | +16 days |
| Additional capital tied up | €320,000 |
The calculation uses generic example figures, not market data. The direction is always the same: a longer payment term granted to customers ties up more capital (higher DSO); a longer payment term taken from suppliers releases capital instead (higher DPO — see working capital). The free cash flow calculator gives a quick, rough read on how a change in payment terms feeds through to operating cash flow.
LiquidityLens reads in open items and schedules expected cash receipts based on agreed payment terms — so a term extension shows up before it becomes a shortage.
See the Liquidity Control SprintNegotiating payment terms: two sides of the table
Negotiating a payment term puts two opposing interests at the same table:
| Side | Interest |
|---|---|
| As supplier (receivable) | A short term lowers your own DSO and the cash tied up — but can be a competitive disadvantage. |
| As customer (payable) | A long term is interest-free financing (higher DPO) — but often costs the early-payment discount. |
Which side comes out ahead depends on your own liquidity position — which is exactly why every negotiated payment term belongs in the 13-week cash flow forecast: a change with a major customer or key supplier often shifts receipts or payments by several weeks and can move the forecast’s low point noticeably, long before it shows up in the bank balance.
The free Excel template for 13-week planning includes fields for payment terms by customer and supplier — a starting point before scheduling runs automatically.
Frequently asked questions about payment terms
These questions come up again and again in practice.