Simply including a net payment term like Net 45 days, is like an accident looking for a place to happen. It is full of potential conflicts between the parties in terms of how each may interpret it. One of the keys in negotiating contracts is to understand all the internal processes and constraints that must be followed so you aren’t promising something you can’t delivery.
Many companies simply do not make daily payments so the date when the supplier invoices or the date the buyer received the invoice usually has no impact on when the payment will be made. In fact many companies do batch payments twice a month and will not issue checks on other dates unless it’s an emergency. To most accounts payable groups a routine payment to a supplier is not an emergency. To manage against requests for special payments that don’t fall within their normal process the accounts payable group may require approval of a senior manager. So its never best to establish a specific date that won’t get supported by your accounts payable group.
Days can be interpreted to be calendar, bank, or business days. Most payment clauses will identify what information the supplier must include on the invoice for processing. If that information is not included accounts payable will return the invoice for correction. The same applies if the invoice is not correct such as having an error in the math or the invoice does not comply with what is actually due the supplier. There is always the question of what triggers the payment term to start. Is it the date of the suppliers invoice or is it the date when the invoice is received by the buyer? The same applies to when payment is made. Is it when the buyer issues the payment or when the supplier receives the payment? Payments may be hard copy or electronic and there can be a significant difference in time between the two. To avoid all these potential conflicts you need to be clear. For example: If you defined “Correct and Conforming Invoice” to mean an invoice that is mathematically correct, is accurate in the amount due the supplier under the contract and the invoice contains all of the following information: (include the list of all information required to be on the invoice)
Your payment term could be
"If Buyer receives a Correct and Conforming Invoice prior to the end of the month, Buyer shall make electronic payment to Supplier no later than the fifteenth of the second month following the date of the invoice."
Or
If Buyer receives a Correct and Conforming Invoice prior to the end of the month, Buyer shall make electronic payment to the Supplier not later than forty-five calendar days after the 1st of the month following the date of the invoice.
This makes it clear that supplier's responsibilities for invoicing are
1). The invoice must be correct.
2). The content included must conform to the contract or order requirements for invoicing,
3). The invoice must be received by the Buyer before the end of the month.
If the Supplier has met those conditions, the Buyer buyer’s first responsibility is they must issue payment electronically.
Under the first approach payment would always need to be made on or before the 15th of that following month. If the 15th was a weekend or holiday they would not be excused and the buyer would need to make the payment earlier. Under the second approach the buyer would need to make payment on or before that specific time period has lapsed. You made it clear that measurement is based upon calendar days. As the number of days in a month varies, the actual date that payment would also vary. This also makes it clear that irrespective of the suppliers invoice date, the period for payment will always be measured against the 1st of the Month following the date of the invoice. It makes it clear that payment will be made when it is issued electronically. More importantly in structuring it this way, it will be something that will fit into your accounts payable process and be able to be processed under their batch payments.
