Supplier Payment Terms: What's Normal, What's Legal, What Actually Works

Payment terms look like a small clause in a contract. They are actually a financing decision, a legal position and a relationship signal at the same time.

Most companies treat them as only the first of those three. That is where the trouble starts.

#The terms you will see, in plain English

Net 30

Pay the full amount within 30 days. The clock normally starts at invoice date, but read the contract — it can start at receipt of goods or at invoice receipt, which are different days.

Net 60, net 90

The same idea, longer. Common with large buyers. In the EU, 60 days is the general limit for business-to-business contracts unless a longer period is expressly agreed and is not grossly unfair to the supplier.

End of month terms

For example "net 30 EOM": the clock starts at the end of the month the invoice falls in. An invoice dated the 2nd gets paid around 58 days later, not 30. Worth knowing before you agree it.

2/10 net 30

Take 2% off if you pay within 10 days, otherwise pay in full at 30 days. An early payment discount.

Payment on receipt

Usually means the supplier does not trust the buyer or does not extend credit. Common with new suppliers and small ones.

Two contracts can both say "net 30" and pay eleven days apart, purely because of when the clock starts. Always define the trigger date in writing.

#What the law says

United Kingdom

If you agree a payment date, it must usually be within 30 days for public authorities or 60 days for business-to-business transactions. A longer period than 60 days can be agreed for business transactions, but it must be fair to both parties.

If no payment date is agreed, the law treats payment as late 30 days after the customer receives the invoice, or after the goods or service are delivered, whichever is later.

When payment is late, the supplier can charge statutory interest of 8% plus the Bank of England base rate, plus a fixed recovery charge:

Most suppliers never invoke this. That is a commercial choice on their part, not an absence of a right on yours.

European Union

The EU late payment directive sets the same shape. Business-to-business payment periods are limited as a general rule to 60 calendar days, and longer periods must be expressly agreed and must not be grossly unfair to the creditor. Public authorities are held to 30 days.

Statutory interest is the reference rate plus at least eight percentage points, and the supplier is entitled to a minimum fixed sum of €40 for recovery costs, without needing to send a reminder.

#What large UK buyers actually do

Large UK companies must report their payment performance publicly, which makes this one of the few areas of procurement with genuine, non-vendor data.

The same statistics show 15% of invoices paid late by number and 14% by value. In other words, roughly one invoice in seven from a large UK buyer misses its own agreed terms.

Two useful conclusions. First, the real average sits much closer to net 30 than to the net 60 and net 90 demanded in negotiations. Second, long terms plus late payment is common enough that suppliers price for it.

The duty applies to UK businesses meeting two of three thresholds: turnover above £36 million, balance sheet total above £18 million, or more than 250 employees. From 1 January 2025 the reports must also cover the value of invoices unpaid within agreed periods. Disputed invoices now count as late.

#Early payment discounts: do the arithmetic

Discount terms look small and are not. Take 2/10 net 30. You give up 2% to get your money 20 days earlier.

The cost to the supplier is 2 divided by 98, because they receive 98 rather than 100. That is 2.04% for 20 days. A year holds 18.25 such periods. Multiply it out and you get roughly 37% a year.

For a buyer with spare cash, taking a 2/10 discount is usually an excellent return — far better than leaving the money on deposit. For a supplier, offering one is expensive borrowing, which is why cash-strapped suppliers offer them and healthy ones often do not.

If you offer discounts to suppliers, expect to be taken up on it by exactly the suppliers whose finances you should be watching.

#When stretching terms costs more than it saves

Moving from net 30 to net 60 frees cash once. It is a one-off improvement in working capital, not a recurring saving. What it can create is recurring cost.

• Suppliers price the delay into the next renewal. You pay for the cash, just not on the line where you can see it.
• Smaller suppliers use more expensive finance to bridge the gap, and that cost comes back to you eventually or the supplier gets weaker.
• Your position in the queue changes. A supplier who is short of capacity serves the customer who pays on time first.
• For critical suppliers, you are increasing the chance of the failure that hurts you most.

RapidRatings found that only 15% of enterprises fully use supplier financial health data when setting payment terms. Thirty per cent do not use it at all. Meanwhile 82% had experienced a material supplier disruption in the previous year. Terms are being set without reference to who can survive them.

The sensible rule is simple: set terms by supplier segment, not by blanket policy.

#Terms only matter if you meet them

There is no point negotiating net 60 if you actually pay at day 75. You get the reputation cost of net 75 and the contractual protection of net 60, which is the worst of both.

Most late payment is not a cash decision. It is a process failure: the invoice sat in an inbox, the purchase order did not match, the approver was on holiday, nobody chased it.

Measure the gap between agreed terms and actual payment date, and split it into deliberate and accidental. The accidental part is usually larger and is fixable without touching a single contract.

#What to put in your terms policy

1. A standard term by supplier segment, with the approval needed to deviate from it.
2. A defined start date for the clock — invoice receipt is the cleanest — stated in the contract, not assumed.
3. A stated position on early payment discounts: when you will take them and who decides.
4. A rule that terms are not changed unilaterally after a contract is signed.
5. A measure of terms compliance reported monthly, alongside the average days to pay.
6. An exception route for suppliers in financial difficulty, so shortening terms is a decision someone can make.

Six lines. Most companies have none of them written down, which is why their terms drift toward whatever each supplier last negotiated.