Payment terms are the few lines on your quote and invoice that say when you get paid, how, and what happens if you are not. Most small trade businesses either skip them or copy "Net 30" from somewhere without thinking about it. Then they wait a month for money they could have collected at the door.
This guide covers the common terms, which ones fit residential versus commercial work, how to set up a late fee that you can actually defend, and what to do when an invoice goes past due. Late fees, interest limits, and lien rights are set by state law, so use this as general information and check your own state's rules.
Common payment terms, in plain English
| Term | Means | Typical fit |
|---|---|---|
| Due on receipt | Pay as soon as the invoice arrives | Residential service calls and small repairs |
| Due on completion | Pay when the work is finished | Residential jobs; often collected on site |
| Net 7 / Net 15 | Pay within 7 or 15 days of the invoice date | Repeat residential clients, small businesses |
| Net 30 | Pay within 30 days of the invoice date | Commercial clients and property managers who pay on a cycle |
| Deposit + balance on completion | Part up front, rest when done | Jobs with materials or multi-day work |
| Progress payments (draws) | Payments at set milestones | Remodels and larger projects |
"Net" just means the full amount is due within that many days. "2/10 net 30" means the customer can take 2% off if they pay within 10 days; otherwise the full amount is due in 30. Early-payment discounts are more common in commercial work.
Net 30 vs due on receipt: which should you use?
For homeowners, due on receipt or due on completion is normal and reasonable. The job is done, the customer is home, and the invoice is a single payment. Giving a homeowner 30 days just means 30 days of float on your money, and invoices tend to get forgotten the longer they sit.
For commercial clients, property managers, and general contractors, net 30 is often what their accounts payable process expects. You may not get due-on-receipt even if you ask. In that case, price the wait into your rates and make sure the invoice reaches the right person with any purchase order or job number they need.
Whatever you choose, write the actual due date on the invoice, not just "Net 30." "Due: November 5, 2026" is harder to misread.
Deposits and progress payments
On jobs longer than a day or two, or with special-order materials, do not wait until the end to get paid. A deposit covers materials and commits the customer. Progress payments keep cash coming in on bigger jobs.
Example schedule for a $12,000 kitchen electrical and lighting job:
- 25% ($3,000) when the quote is signed.
- 35% ($4,200) when rough-in passes inspection.
- 40% ($4,800) on completion and final inspection.
Tie each payment to a milestone the customer can see, not a calendar date. Some states limit how large a deposit can be on home improvement contracts, so check your state rules. More detail is in how much deposit to ask for.
How to add a late fee to an invoice
A late fee is much easier to collect, and to defend, when the customer agreed to it before the work started. Put it on the quote or contract, then repeat it on the invoice. Springing a late fee on someone who never saw it in advance usually just starts an argument.
Two common forms:
- Flat fee: for example, "$25 late fee if not paid within 15 days of the due date."
- Monthly interest: for example, "Balances unpaid after the due date accrue interest at 1.5% per month." On a $2,000 invoice, that is $30 for each month it remains unpaid.
States set limits on interest rates and late charges, and some have specific rules for consumer (homeowner) contracts. A rate that is fine in one state may be over the limit in another. Check your state's usury and late-fee rules, or ask a local attorney or your trade association, before adding a percentage. This is general information, not legal advice.
Sample wording you can adapt for your quote and invoice: "Payment due on completion. Invoices not paid within 15 days of the due date are subject to a late charge of [amount or rate], as permitted by law." Have your terms reviewed for your state.
Be practical about enforcing it. For a good repeat customer who is a week late, a friendly reminder works better than a $25 fee. Late fees are most useful as an incentive written into the terms, and as leverage on accounts that are seriously overdue.
A simple follow-up schedule for unpaid invoices
Most late invoices are not refusals. People forget, the email got buried, or the person who pays the bills is not the person you talked to. A steady, polite schedule fixes most of them:
- Due date: friendly reminder with the invoice and pay link attached.
- 7 days overdue: second reminder, restating the amount and due date.
- 14 days overdue: firmer reminder that mentions the late fee in your terms.
- 30 days overdue: phone call. Ask directly when they will pay and offer a payment plan if needed.
- 45 to 60 days overdue: final written notice. Mention next steps such as small claims court or lien rights if they apply.
Doing this by hand is where most people fall off. ForgeBill can send automatic email reminders on a schedule you set, for example on the due date, 7 days overdue, and 14 days overdue. For more ways to shorten the wait, see how to get paid faster as a contractor.
Lien rights: know your deadlines before you need them
In every state, contractors who improve real property have some form of mechanics lien right, but the rules vary widely. Some states require a preliminary notice early in the job to preserve your lien rights. Nearly all have strict deadlines for filing after you finish, and some have special rules for owner-occupied homes.
You do not need to become a lien expert. You do need to know, before a job starts, whether your state requires a preliminary notice and what your filing deadline is. Look up your state's rules or ask a construction attorney once, and write the key deadlines down.
Put the terms where customers will see them
- On the quote, before they accept. The free contractor quote template has a spot for terms.
- On the invoice, near the total, with the actual due date.
- In the email or message that sends the invoice.
- Accepted payment methods listed clearly. Card and bank pay links remove a common excuse. See how contractors can accept credit card payments.
For the full list of what belongs on the bill, see what to include on a contractor invoice, or start one in the free invoice generator.
Frequently asked questions
What payment terms should a contractor use?
For homeowners, due on receipt or due on completion is common, with a deposit on larger jobs. For commercial clients and general contractors, net 30 is common because it matches their payment cycles. Larger projects often use progress payments tied to milestones.
Can I charge a late fee on an invoice?
Generally yes, if the customer agreed to it in advance and it stays within your state's limits on interest and late charges. Put the late fee in your quote or contract and repeat it on the invoice. Check your state's rules before setting the amount.
What is a reasonable late fee for a contractor?
Common approaches are a modest flat fee or a monthly percentage on the unpaid balance. What is allowed depends on your state, and some states have specific limits for consumer contracts, so confirm your state's rules before choosing a number.
Is net 30 normal for residential work?
Not usually. Most residential service work is due on receipt or on completion. Net 30 is more typical with commercial clients, property managers, and general contractors.
What should I do when a customer will not pay?
Send written reminders, call, and offer a payment plan if needed. If that fails, check your lien deadlines and consider small claims court or a collections service. Keep your quote, change orders, photos, and invoice together as evidence.
Free tools for this
- Free invoice generator
Make a contractor invoice PDF in your browser. No signup or watermark.
- Contractor quote template
Scope, exclusions, deposit, and a signature line, ready to print.