I'm connecting a 8 circuit single phase panel to a 120/240v 3wire generator. Coming from the panel I'm using a 3 conductor cable to be connected to a 40 amp breaker on the generator. My question is where does the neutral get connected at the generator

What receptacle do you have? It should be 4 wire.

An interlock kit would have made this a simple process.

Yep, there are issues with where the ground and neutral is supposed to go.

For stand alone generator operation ground and neutral should be connected at the generator frame.

For providing power to the assumed house, the ground-neutral bond needs to be broken at the generator. They should still enter the house as 4 wires.

Generator frame gets ground.
Neutral gets neutral

The ground neutral connection is done at the panel.

What generator is it?
I would assume there is a neutral and ground connection in the wiring compartment.

Kiss, I suspect that if a 40amp breaker is being used the generator is probably too small for any success with an interlock kit. An 8 breaker panel suggests that it is probably a 6 to 8 KW generator.

MB:
We are talking to ourselves here. Both the interlock kit and one of those. I'm thinking the transfer panel looks like this one: Amazon.com: 6-5000 Manual Generator Transfer Switch Panel 120/240V 40A CSA & ETL. BONUS: L14-20 Male and Female Power Cord Ends.: Home Improvement (http://www.amazon.com/6-5000-Manual-Generator-Transfer-Switch/dp/B000PKIRA0)

There are tradeoffs with both methods.