Net 30 payment terms: 5 Smart Reasons to Use Net 30 Payment Terms or Not
Net 30 is also a form of trade credit because it allows a customer to receive products and services and pay later. As part of optimizing your cash flow, it’s important to consider how much time you will give your clients and customers to pay your business upon receipt of a product or invoice. For B2C companies, offering net terms can differentiate your business from its competitors and help you manage accounts receivable.
On an invoice, net 60 means payment is due within 60 days of the invoice date. In the invoice template above, you can write net 30 in the “notes” section right beside the total amount due. Also, there is an “invoice due date section” at the top right where you can state the exact date payment is due. Designed for business owners, CO— is a site that connects like minds and delivers actionable insights for next-level growth.
To use this payment period, send an invoice with “net 30” clearly stated. For clients who have little to no knowledge of accounting terms, “net 30” on an invoice may be confusing. When a business offers “net 30 terms”, it’s offering payment terms and allowing its customers 30 days from the invoice date to pay the amount due. Businesses that offer net 60 terms or net 90 terms give customers 60- and 90-days, respectively. In a perfect world, the customer would then always pay the invoice within that 30 day period. However, late payments still happen on a regular basis for small to medium businesses in every industry.
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One solution to this potential challenge is to set up an automatic recurring payment solution for your long-term customers. If your business offers a consistent set of services charged at the same rate each month, you may be able to set up a way to charge your customer’s account on a regular cadence. This smooths out the entire billing process and makes your cash flow more predictable.
- Many smaller, non-retail businesses will also avoid net 30 because 30 days is simply too long for them to wait to get paid.
- B2C businesses often call this a financing, installment, or payment plan.
- Keep in mind, however, that if you don’t meet the payment terms and pay within that 10-day window, you’ll have to pay the entirety of that invoice with no discount.
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But, if you’re already operating on a razor-thin margin, discounting invoices may not be a good idea for your business right now. One of the most effective ways to get your customers to pay early is to offer an early payment discount. If you’re currently offering your customers net 30 terms, but would like them to pay a little quicker, you can add a discount for early payment. Net amount on an invoice is the cost of products or services before sales tax or any other fees like a discount or outstanding balance. The invoice total, including tax and additional fees, is an invoice’s gross value.
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What Are Net Payment Terms?
You, as the customer, can pay the bill within 30 days to meet that term, or pay earlier for a discount if your supplier offers one. Due in 30 days more often applies to personal expenses such as utility bills, telephone bills, mortgage statements, and related expenses. In these cases, you have 30 days to pay the bill before incurring a penalty or surcharge. Net terms can also help you build stronger client relationships over time. Net terms are often helpful to B2B companies that are also trying to manage and smooth their cash flow. When you make your clients’ lives easy, they’re more likely to continue doing business with you—and may even recommend your business to other customers.
It’s tough to compete with other businesses in your industry if they’re extending net 30 terms to their customers and you’re still insisting on payment up-front. While not every business is in a position to offer credit terms to all of its customers, doing so can help your business remain competitive. One of the most frequently used payment terms, net 30 is a credit term extended to your customers requesting that payment be made within 30 days of the invoice date. While net 30 can be used with a discount as an incentive for early payment, net 30 is also used without any discounts being offered.
When Does Net 30 Start?
The seller then completes the rest of the invoice as normal, then delivers the invoices to their customer after goods or services have already been delivered. A small business may use shorter payment terms, like net 10, with new customers or customers that tend to pay late. Once the customer starts paying on time, the business may extend longer payment terms like net 30 or net 60.
That said, decisions about net terms in invoicing are and should frequently be conducted on a case-by-case basis. One has been a loyal buyer for several years, always paying invoices on time. The second customer has only been a customer for two months and has already missed two payment deadlines. Net 30 has become a common standard for many businesses, but it’s by no means required.
Sellers may use it because it:
Some businesses expect payment much sooner, so you may also see net payment terms of 10, 14, or 15 as well. In the U.S., “net 30” refers to a very common payment term that means a customer has a 30-day length of time (or payment period) to pay their full invoice balance. Net 30 payment term is used for businesses selling to other businesses, and the 30 days includes weekends and holidays. When your business is in a strong position, it can be a wise move to take advantage of discounts like 2/10 net 30 to reduce liabilities. This can help you to save money over time and put yourself in an even better financial position.
While offering net 30 terms to your customers has some distinct advantages, before making a decision, be sure you’re aware of the drawbacks as well. If you frequently sell to larger businesses, you’ll understand that sometimes the act of getting payment up-front or at the time of service is next to impossible. To save you time, FreshBooks offers a free download of invoice templates. You’ll find a variety of templates and styles to suit your business. Payment terms like net 30 are essential to include on an invoice because they clarify when you want to be paid.
Why do companies offer net 30 terms?
With bills to pay to keep your small business afloat, chasing down payments is stressful. This period gives clients a reasonable amount of time to gather their payment, and—assuming your business isn’t cash-strapped—it’s short enough to not create cash flow issues. But what does net 30 mean really and should you use it on your invoice?
Here’s what to know about net 30, net 60, and net 90, and whether these payment terms are right for your business. Net 15 on an invoice shows that a client should pay you in full 15 days from when they receive the invoice. Just like net 10, net 15 is short enough for companies with limited cash flow.