How Long a Grace Period Should You Give Your Customers?

The grace period is the amount of time you give your customers to pay without incurring late fees or interest. Therefore, when determining the length of your grace period, keep in mind that the more time you give your customers to pay, the longer it will take to turn outgoing bills into incoming cash.

At the same time, you have to be fair to your customers and not demand unreasonable payment deadlines. For example, giving a customer 48 hours to pay is unreasonable in most cases.

Grace periods generally last 20 to 30 days from the date of the invoice. If you print and send an invoice on January 10, 2000 and you give your customers a 25-day grace period, the payment due date would be February 4, 2000.

There are ways, however, to speed up the cash-conversion process (the process of turning invoices into cash).

First, prepare and send your invoices as quickly as possible after the sale. Don´t wait until the end of the week or the end of the month to print and send the customer an invoice. This only adds unnecessary days or weeks to the cash-conversion process.

Next, you can also give your customers an incentive to pay their bills early. Try offering a small discount for early payment — usually 2 percent to 3 percent off for payment within 10 days.

Also, call your customers the day after the grace period ends if you haven´t received their payments. This lets them know that you keep close track of your outstanding invoices.