Payment Terms

What are payment terms?

Payment terms define when, how and under what conditions a buyer must pay a seller.

In international trade, payment terms are a critical part of the commercial agreement because they affect cash flow, risk, documentation and buyer-seller trust.

Why do payment terms matter?

Payment terms matter because they determine when the seller receives cash and when the buyer must fund the purchase.

They also influence the level of risk each party accepts. A seller may prefer payment before shipment, while a buyer may prefer payment after delivery or inspection.

Common types of payment terms

Common payment terms include:

• payment in advance

• deposit plus balance before shipment

• payment on shipment

• payment on delivery

• net 30, net 60 or net 90

• letter of credit

• documentary collection

• open account

Common mistakes

Common mistakes include:

• agreeing vague payment dates

• failing to define the payment trigger

• not specifying currency

• ignoring bank fees or FX costs

• failing to align payment with documents

• using buyer-friendly terms without risk controls

How iTradeDigital helps

iTradeDigital helps buyers and sellers define payment terms as part of the transaction workflow. It keeps payment expectations connected to documents, shipment milestones and agreed responsibilities.

Related terms

• Open account

• Letter of credit

• Documentary collection

• Payment obligation

• Commercial invoice

FAQs

Are payment terms the same as Incoterms®?

No. Payment terms define when and how payment happens. Incoterms® define delivery, cost and risk responsibilities.

What does net 30 mean?

Net 30 usually means payment is due 30 days after the agreed trigger, often the invoice date.

Why are payment terms important for exporters?

They affect cash flow, risk, financing needs and the likelihood of being paid on time.