Last edited 08 Jul 2019

Payment period

Contents

[edit] Introduction

The payment period is the period of time from the point a debt is incurred to the due date of the repayment. The average payment period is the average time a company takes to make payments to its creditors.

With credit card payments, the payment period is usually around a month from when the item was purchased. If payment is not received by the due date, interest charges will apply. With mortgage payments, the payment period is also usually a month, although with some it can be biweekly.

Typically, in business, when invoices for work undertaken are submitted to the buyer of goods or services, the payment period is 30 days, however it is not uncommon for companies to have an unstated policy of flouting the payment period by as much as two to three months. This is usually for no other reason than it is the culture of the company to behave in that way, but can also be a sign of cash-flow problems.

[edit] Construction industry

In the construction industry, payment can be the source of a great deal of acrimony. Not only are the sums involved very large, and the duration of projects very long, but the total amount payable tends to change over time. In addition, contractors, subcontractors and suppliers face considerable risk when pricing construction projects, and optimistic pricing or late payments (ie the payment due does not arrive within the payment period) can quickly cause cash-flow problems.

As a result, payments are often the source of disputes which can ultimately lead to a breakdown in relationships and even project or business failure.

This is exacerbated by the very long supply chains that can exist on construction problems, with payments taking considerable time to filter from the top to the bottom.

The construction industry has introduced a wide range of initiatives in an attempt to eradicate late payment. For more information see: Remedies for late payment.

[edit] Pay period

Payment period should not be confused with 'pay period' which is the length of time – usually recurring – over which employees are paid. Pay periods depend on the employer and the nature of the work but can be weekly, bi-weekly, semi-monthly, monthly etc. Professional salaried employees are typically paid per calendar month, while manual workers may be paid weekly or even by the day.

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