A Guide to Payment Due Upon Receipt (With Pros and Cons)

Companies use a payment due upon receipt to require their customers to make a payment soon after receiving an invoice. This type of payment method can help a business's finances to operate more smoothly. Learning the fundamentals about payments due upon receipt may help you understand if this practice is a good fit for your workplace. In this article, we discuss what a payment due upon receipt is, provide various pros and cons for it and list several ways that you can request a payment due upon receipt.

Related: How To File Invoices: Why It's Important and Key Steps

What is payment due upon receipt?

A payment due upon receipt is a payment that customers must make immediately upon receiving an invoice for a transaction. Typically, businesses use payment due upon receipt to signify that a payment is due by the following business day. The purpose of this type of payment request is so that companies can communicate their payment expectations to clients clearly and companies can receive their cash flow quickly.

Why is it important to understand payments due upon receipt?

It's important for companies to have a deep understanding of their payment preferences and guidelines. Here are several reasons why it's important for businesses to understand payments due upon receipt:

• Minimize the risk of missed payment: If customers receive a notice of payment due upon receipt, it may lower the chance of them forgetting or missing a payment since they must pay immediately upon receiving the invoice.

• Ensure the company gets paid on time: If a company requires payment upon receipt, they may be more likely to receive payment from customers on time.

• Allows more control over payments: Businesses can have more control over their payment guidelines by creating the terms for the payment, like if they want it by the end of the same day or by the end of the following business day.

Related: Proforma Invoice: Definition, Examples and Frequently Asked Questions

Pros of payment due upon receipt

There are several advantages to using this payment setup on your invoices, including:

Turnaround time

If your workplace has a smaller budget, it's useful to use this payment setup for a quicker profit. By receiving the payment quickly, you can put that money back into the business, which may expedite company growth. For example, businesses that don't use this payment setup may receive payment months after a transaction. Though, by using payment due upon receipt, a company can receive a payment by the following business day.

Productivity

A business may have increased productivity and efficiency when using this type of payment request. This is because they can spend less time sending out invoices and communicating with customers about payments. By spending less time handling late payments and outstanding invoices, they can spend more time conducting business operations.

Cash flow

Businesses may have a more consistent cash flow when customers pay upon receiving their invoices. Cash flow is an important part of a business's financial wellbeing, so having a reliable cash flow may help a company succeed financially. It also allows companies to plan their cash flow ahead of time, so they have a better idea of how much income they can generate in the future.

Related: Understanding Cash Flow Statements: A Complete Guide With Steps, Methods and Examples

Cons of payment due upon receipt

Here are some cons that businesses may encounter when using a payment due upon receipt:

Customers challenges

Customers may face challenges with paying immediately upon receiving an invoice. This may lead to customer's businesses that don't require payment upon receiving a receipt. To counteract this, businesses may provide incentives for customers that pay on time, like a discount or free shipping, to ease the challenges that immediate payment may cause.

Revision projects

If a project requires various revisions or extra purchasing, it may be difficult for customers to make an immediate payment after receiving an invoice. Customers may want to wait until they complete their project so that they don't have to continue repurchasing supplies and making payments. For example, a construction company that buys steel from a supplier may want to wait to make their payment until they complete their construction project to avoid having to pay for materials often throughout the project.

Companies that complete long-term projects may prefer to choose a company that allows them to purchase items and pay for them later, rather than paying immediately.

Related: How To Get Clients To Pay You (With Tips)

How to phrase a request for a payment

In order to communicate your workplace's payment setup clearly to customers, it's important to phrase a payment request appropriately. When delivering an invoice to a customer, most companies send invoices through email or direct mail. You may attach a message that includes information about the payment amount and due date. Here are the steps you can take to phrase a request for payment:

1. Thank them for their purchase

Before giving payment instructions, it's important to thank the customer for their purchase. You might include the name of the product or service they purchased. Here are some phrases that you may use:

• Thank you for purchasing [product or service name].

• Thank you for your purchase on [date].

• [Company name] would like to thank you for your purchase.

2. Provide expectations

After thanking them, provide expectations about the date and time that they should complete the payment. Be sure to use professional and polite language when giving payment expectations. Here are some examples of how you can format this part of the request:

• Please render your payment immediately upon receiving this invoice.

• [Company name] requires that you complete your payment one business day after receiving this notice.

• Please submit your payment by the end of the day today, [today's date].

3. Provide instructions

Provide instructions on how customers should turn in their payments. Try to give detailed instructions so that customers understand how to submit their payments correctly. Here are some examples of formatting for payment instructions:

• Please fill out the attached billing form to submit your payment.

• Please complete the payment by clicking the link provided at the bottom of the invoice.

• Please submit your payment by using the online payment section.

Tips for payment upon receipt

Here are some tips to keep in mind when requesting a payment:

Choose a template

If your workplace sends out numerous invoices throughout the day, it may be useful to use an invoice template that requests payment immediately. By doing this, you can have a standardized message prepared that you can send easily and quickly. You can fill in the information needed, like the date of the payment or the payment amount, then send it to the customer.

Consider a late fee

Consider adding a late fee for payments made past the due date. This may help customers feel compelled to make their payment on time. You may add a line about a late fee at the end of your payment request. Here are some examples of how you can format a late fee guideline:

• If a payment is late, we reserve the right to add a late fee of $20.

• You may receive a fee of $15 if your payment is late.

• You may receive a charge of $10 if we receive payment past the due date.