Credit terms of receivables

Businesses tend to sell their goods and services on credit. They transfer the goods and services to the customers and allow the customers to pay for the goods and services later. It is important that the credit terms are mutually agreed.

What are credit terms? The terms and conditions applicable to a credit sale or any other credit offered to a party are known as credit terms. Credit terms include terms such as credit period, payment modes, any early settlement discounts etc. In short, all the terms and conditions which regulate the credit are included in credit terms.

To avoid any confusions and disputes in future, credit terms are mutually agreed. There can be several ways to do so, some of which are mentioned below:

  • For regular customers, credit terms can be agreed as a standing agreement that can be terminated with mutual consent.
  • Credit terms can be mentioned on the invoices issued.
  • Credit terms can be mentioned on the company‚Äôs website and it is implied that customers have read and agreed the credit terms of credit sale.
  • Specific promissory notes can be prepared stipulating all terms and conditions.