March 22, 2022Cash Flow
Xero has grown exponentially over the past few years. The New Zealand company has become a strong contender for Quickbooks and now boasts 3 million subscribers. One of the features that continually draws new users is the ease of setting payment terms in Xero. Whether your business requires payment in seven days or 30, the software makes it easy to communicate this to your customers.
Identifying Payment Terms in Xero
When discussing credit or loans in the financial world, the term tends to refer to the length of time to pay. However, in a more general sense, the term can refer to any conditions related to the payment. In Xero, this includes:
- Due dates for invoices
- Penalties, fees and other consequences of paying late
- Accepted payment methods
- Required currency for international transactions
Determining Your Payment Deadline for Xero
For a long time, most businesses operated on a 30-day pay cycle. This means that all bills are either due at the end of the month or on a specific day each month. However, new research found that 75% of businesses now set payment terms to 2 weeks. Xero also conducted a study and found that, when setting a deadline, companies see better results with shorter pay terms:
- Customers settle invoices due in 3 to 4 weeks in roughly a month.
- Customers settle invoices due in 2 weeks in 2 to 3 weeks.
- Customers settle invoices due in 1 week in 2 weeks.
Xero’s study also found that companies see better payment performance when they discuss payment terms with each new customer before onboarding them. It makes the expectations clear to the customer.
Setting Your Payment Terms in Xero
Xero makes it easy to set up a default due date for organisations. However, it also makes it easy to override this and create specific terms for individual customers.
Default Payment Terms
Setting default payment terms saves the team time from entering the information on individual invoices. Take the following steps:
- Click the name of your organisation.
- Choose Settings.
- Choose Invoice Settings.
- Navigate to Sales Invoices Default Due Date (Optional) and set your terms.
- Save your changes.
Custom Payment Terms
When you need to override the default payment terms in Xero, you take a completely different route. Consider the following:
- Open the Contacts menu.
- Choose All Contacts.
- Search for the specific contract and open it.
- Click Edit.
- Navigate to Financial Details.
- Add your payment terms to the Invoice Due Date section.
- Save your changes.
Asking for Deposits
It is not uncommon for companies to ask for a deposit for orders. Consider this when clients have terrible credit histories or have failed to pay their bills on time since working with you. You can also request a deposit during the probation period for customers. Companies can request a deposit with a simple one-sentence explanation that cancellations and late payments have prompted the need.
Securing on-time payments can become a time-consuming job. PencilPay helps companies take a more proactive approach by assisting with accepting applications, processing them and securing information necessary to make good credit decisions. It also integrates well with accounting systems, so you can use it to better ensure customers meet your payment terms in Xero. Get started with a free 30-day trial.