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Payment & Collections

Payment terms for Indian businesses — what they mean and how to use them

March 5, 2026
4 min read

Payment terms are the part of an invoice that most small businesses in India either leave blank or fill with 'as discussed' — which means nothing, enforces nothing, and protects no one.

Globally, 'Net 30' or 'Net 15' are standard. In India, things work differently. Corporate clients have 45-to-90-day payment cycles. Government clients can take 6 months.

Understanding payment terms — and choosing the right one for each client type — is one of the most practical financial skills a business owner can have.

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Common payment terms and what they actually mean

  • Advance / 100% upfront: Full payment before work begins or goods are dispatched. Standard for high-risk clients or custom-made goods.
  • 50% advance, 50% on delivery: The most common structure for project-based work in India.
  • Net 15: Full payment due 15 days from invoice date. Standard for freelancers and small service businesses.
  • Net 30: Full payment due 30 days from invoice date. Standard for B2B business in India.
  • Net 45 / Net 60 / Net 90: Common in manufacturing, large retail, and government procurement.
  • Due on receipt: Payment expected immediately upon receiving the invoice.
  • EOM (End of Month): Payment due on the last day of the month in which the invoice is issued.
  • Milestone-based: Payment linked to project deliverables rather than a calendar date.

TDS on invoices — a reality every Indian business must understand

  • What is TDS: Tax Deducted at Source is when your client deducts a percentage of your invoice amount and deposits it directly with the government.
  • When TDS applies: If you provide professional or technical services to a company or firm and the payment exceeds ₹30,000, they must deduct TDS at 10% under Section 194J.
  • What this means: You invoice for ₹50,000. Your client pays you ₹45,000 and deposits ₹5,000 as TDS.
  • How to show TDS: Add a line: 'TDS Deductible under Section 194J: ₹5,000 (10%)' and update your 'Net Payable'.
  • Claiming TDS credit: Your CA will cross-check your Form 26AS against the TDS certificates (Form 16A).
  • Form 15G/15H: If your income is below the taxable threshold, submit Form 15G or 15H to request zero TDS.

How to set payment terms that protect your cash flow

  • Match payment terms to client risk profile: New clients get advance or 50/50. Long-term trusted clients get Net 30.
  • Never leave 'Payment Terms' blank: A blank field has no legal standing. Write the date explicitly.
  • Build a late payment clause: '1.5% per month on outstanding amounts after due date.' Even if you never enforce it, its presence changes behavior.
  • Early payment discounts: '2/10 Net 30' means a 2% discount if paid within 10 days.
  • Government or PSU clients: Add a note 'Subject to work completion certificate.'

MSME payment protection laws every small business should know

  • The MSMED Act, 2006: If your business is registered as an MSME, buyers are legally required to pay you within 45 days if there is a written agreement, or within 15 days if there is no agreement.
  • Interest on delayed payments: If a buyer delays payment beyond the legal limit, they owe you compound interest at three times the RBI bank rate (approximately 18-21% annually).
  • MSME Samadhaan portal: The government's online dispute resolution portal for MSME payment delays.
  • Udyam registration on invoice: Add 'Udyam Registration No.: UDYAM-XX-00-XXXXXXX.' This gives you legal protection.

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