Setting Credit Terms That Get You Paid

What credit terms are (and what they are not)

Credit terms are the contractual agreement between you and your customer about when and how they pay for goods or services you supply on credit. They are separate from your price list and from the invoice itself. Critically, credit terms must be agreed before a debt arises — you cannot impose new terms after the transaction has already occurred. A customer who has not agreed to your terms before you supply is not bound by them.

Credit terms are not a reminder that payment is due — they are the binding agreement that determines what happens if payment is not made and on what date it falls due.

The seven elements every B2B credit agreement should include

1. Payment period — specify clearly: "30 days from invoice date" is unambiguous; "end of following month" is less so. Whichever you use, apply it consistently.
2. Late payment interest clause — state the rate and calculation method (e.g., "interest at 12% per annum calculated daily on the overdue balance from the date payment fell due"). Without this clause, you cannot charge interest.
3. Costs of recovery clause — the customer must agree to reimburse your reasonable recovery costs, including debt recovery agency fees and legal costs, if they default. Without this, you bear those costs yourself.
4. Retention of title clause — for businesses that supply goods, title should not pass to the customer until full payment is received. This is your ownership of goods clause (see also PPSR registration below).
5. Personal guarantee requirement — for company customers above a credit threshold, require a director's personal guarantee before extending credit. See the director's personal guarantee template.
6. Governing law — specify the state or territory whose law applies. This avoids disputes about jurisdiction.
7. Dispute resolution process — an agreed process for raising disputes before either party goes to court reduces the risk of a debtor using a spurious dispute to delay payment.

30 days or 7 days? Choosing your payment period

30 days from invoice date ("Net 30") is the B2B standard in Australia, but many businesses could move to 14 days or even 7 days without significant pushback from customers — particularly in service industries where the customer receives value immediately.

The more important factor is consistency. Quoting 30-day terms but not following up until day 60 trains your customers to pay late. Whatever terms you set, enforce them at day 1 of non-payment, not at day 45.

How to get customers to accept your credit terms

Use a credit application form. Have the customer complete and sign it before you supply anything on credit. The signed form is your evidence that the customer agreed to your terms. See the commercial credit application template for a starting point.

Do not skip this step for existing customers who have "always traded with you." Relationships change. People move on. Having a signed agreement protects you if a relationship sours or a contact leaves the business.

For new accounts, make the credit application a condition of supply. For existing accounts, introduce it at the next account review — most customers will not object to signing something they believe they will honour.

Retention of title and PPSR registration

If you supply goods and wish to retain ownership until paid, a retention of title (ROT) clause in your credit terms is not enough on its own. Under the Personal Property Securities Act 2009 (Cth), a ROT clause must be backed by registration on the Personal Property Securities Register (PPSR). Without a valid PPSR registration, your ROT clause may be unenforceable against a liquidator if the customer goes into insolvency — and you could lose the goods entirely.

PPSR registration is a straightforward online process. If you are a goods supplier with significant outstanding stock in the hands of customers, registering your security interests on the PPSR is a priority.

The most common credit terms mistake

The single most common mistake is having terms that were never properly agreed. This takes two forms:

• Sending a credit application but never getting it signed — the customer fills it in, but there is no executed copy on file
• Printing terms on the back of invoices — this is almost always too late. By the time the invoice is issued, the contract has already been formed (at the point of acceptance of the order). Terms that appear only on invoices may not be incorporated into the contract.

The remedy is simple: get a signed credit agreement before the first supply. It takes a few minutes and protects you for the life of the account.

Related tools: Commercial credit application template · Credit limit calculator