Payment due dates: definition, calculation and optimization

The payment due date is the deadline for payment of an invoice. It occurs at the end of the payment period specified on the invoice. This date plays a decisive role in commercial transactions. It provides a framework for relations between your company and its customers, specifying the deadline for payment of amounts due. Only when this date has passed, and no payment has been made, is the invoice considered overdue. Furthermore, agreeing to a relatively long payment deadline is often appreciated by customers, who see it as a commercial gesture.

 

What’s more, knowing the due date of invoices enables you to manage your accounts receivable and take them into account for cash management purposes. The company knows that incoming flows may not arrive until that date. It must therefore have the necessary funds to pay its own invoices by that date. Good payment schedule management therefore has a direct impact on a company’s financial health.

The due date is defined as the latest date by which the invoice must be paid. This payment due date therefore determines when the invoice becomes payable, and may therefore be the subject of collection proceedings in the event of non-payment on the due date.

Including the payment due date on invoices is essential, both for the customer and for the supplier or service provider.

From the customer’s point of view, knowing the payment due date allows him to know until what date he can pay without fear of penalty. He may even be rewarded for early payment, if discounting is applicable to the contract. It also enables him to know when he will record an outflow in his cash flow. So he can anticipate and manage his cash flow more effectively. They can even negotiate payment terms in advance, in line with their sales cycle, to reduce cash flow pressures.

From the supplier’s or service provider’s point of view, knowing the due date is just as important. It enables them to anticipate incoming cash flows, as well as to set up alerts in the event of non-payment, so as to rapidly launch the collection procedure and reduce customer risk. This facilitates cash flow planning.

To facilitate this management, some companies choose to set up a payment schedule, which centralizes all due dates for each customer or order. This tool not only gives you a clear view of expected cash receipts over a given period, but also helps you anticipate any cash flow shortfalls. A structured payment schedule makes it easier to plan reminders, adjust payment terms if necessary, and improve communication between accounting and sales teams. It’s a real lever for securing financial flows.

In addition, negotiating payment terms is part of the commercial negotiation process, which can reward a loyal customer or, on the contrary, punish a customer who is often late with payments.

The payment deadline and the method of calculating the due date must be specified in the contract and/or quotation signed by the customer.

For business-to-business transactions, you can determine the payment term that suits you and your customer. However, you must respect the limitations imposed by law. For example, you cannot set a payment term longer than 60 days or 45 days end of month. In addition, several calculation methods can be used. Here’s how it works.

Good to know: if the last day of the deadline is a public holiday, Saturday or Sunday, the deadline expires at the end of the next working day.

Payment due date: calculation in net days

This is when the payment due date is expressed in days. For example: 15, 30, 45 or 60 days. The starting point for calculating the due date is the invoice issue date.

You can also set a fixed payment date. For example, on the 10th or 15th of the month. In this case, no matter how many days pass, payment is due on the set date. So, whether an invoice is issued on February 20 or March 5, it must be paid on the following March 10.

Finally, it is possible to set a payment due date of X days from the end of the month. For example: 30 or 45 days end of month.

Two calculation methods can then be applied:

• from the end of the month in which the invoice was issued, the number of days is added;
• or from the end of the month in which the invoice falls, after adding X days to the invoice issue date.

For example, if an invoice is issued on January 15, in the first case the customer has until March 16 to pay, while in the second case he has until February 29.

Whatever calculation method is used, it must be clearly indicated in contractual documents (contract, quotation, invoice, etc.).

It is also possible to waive the payment deadline and require immediate payment on receipt of the invoice. The due date is then the same as the invoice date.

• Payment terms defined in the contract are taken into account
• Calculation according to standard payment terms (30 days, 60 days, etc.)
• Impact of public holidays and weekends on the effective due date
• Tools and methods for automating due date calculations

For certain business sectors, the law provides for different payment terms. Here are a few examples:

• payment terms may be set at up to 55 days from the end of the month for the sale of green space maintenance equipment;
• payment due date may be up to 110 days after invoice date for the sale of agricultural equipment, with some exceptions;
• 90 days from the date of invoice for payment of the balance of invoices issued before the opening of the season for the sale of snow sports equipment;
• etc.

Good to know: once the payment term has been determined, you can automate the calculation of the payment due date using your invoicing or collection software. This avoids calculation errors and saves time.

Good management of payment deadlines is one of the keys to optimizing cash flow and customer risk. But there are a number of complementary actions you can take to gain full control of the situation.

First of all, you can apply different payment terms depending on the customer’s profile. For example, a loyal customer who has never been late with a payment may benefit from a longer payment term than a new customer or a customer who has already been late several times. To determine the customer’s profile and the risk he represents, you can set up a scoring system and associate each score with a possible payment term.

On the other hand, setting up a precise follow-up of due dates can make a big difference. It allows you to identify unpaid invoices very quickly and take immediate action. And it’s been proven that the faster payment reminders are sent out, the more likely they are to result in prompt payment.

To help you keep track of payment deadlines, you can digitize your process and, in particular, automate certain actions. For example, you can program alerts when the due date is exceeded, so that your sales representative can send a reminder by telephone, or send an automatic reminder e-mail to the customer. This optimizes the collection process, greatly increasing its efficiency.

Lastly, communication with the sales department is essential to adapt payment deadlines and collection policies. It is also very useful to talk to customers to ensure that payment deadlines are consistent with their own operations.

To optimize the management of payment deadlines, integrating accounting lettering and collection software into your process is an ideal solution. This enables you to monitor invoice payments in real time, detect unpaid invoices and trigger the collection scenarios you’ve set up in advance.

Similarly, having a financial dashboard at your disposal is very important for effective monitoring and making the right strategic decisions.

Good management of payment deadlines not only affects your cash flow, but also your business relations with customers and suppliers. Rigorous monitoring of payment deadlines ensures financial stability for your company. Adopting best practices in this area, and using the right tools such as collection software, will help you optimize payment management simply and effectively.