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What does net 30 mean in finance?

Before signing the contract, delivering the work, and sending the invoice to your customer, there’s one critical thing you need to do: work out your payment terms. For many businesses across the country, net 30 invoice terms are the go-to option. But what does net 30 mean, how does net 30 work, and are there any alternatives to net 30 terms? Find out everything you need to know in this comprehensive guide.

What is net 30?

Net days is a term used in payments to represent when the payment is due, in contrast to the date that the goods/services were delivered. So, when you see “net 30” on an invoice, it means that the client can pay up to 30 calendar days (not business days) after they have been billed. It’s essentially a form of trade credit that you’re extending to the customer.

How does net 30 work?

It’s simple – all you need to do is stipulate “net 30” in the payment terms of your invoice. Then, after delivering the agreed goods/services to your customer, send across the invoice. You should be paid within the agreed-upon 30 days, although it’s worth remembering that late payments are an issue that many small-to-medium businesses (SMBs) deal with on a day-to-day basis.

When does net 30 start?

Net 30 could mean 30 days after the sale, 30 days after delivery, or 30 days after the invoice. This completely depends on whatever you and your client have agreed upon, which means that it’s always a good idea to include this information in the contract so that there’s no confusion after the fact.

What does ‘3/10 net 30’ mean?

Sometimes, net 30 invoice terms are coupled with a discount. This discount is intended to encourage customers to pay more quickly. So, when you see an invoice that states ‘3/10 net 30’, it means that customers can receive a 3% discount if they pay within 10 days. Of course, this also applies to other discounts, so a 2% discount on payments made within 10 days would read as ‘2/10 net 30’.

What are the advantages of net 30?

Net 30 terms are relatively generous, meaning that they allow you to take on more clients than you would with stricter payment terms. They’re essentially an extra incentive to buy from you. It’s also worth remembering that offering trade credit to your clients is an expression of trust, and it’s likely to foster a good relationship that could lead to future business.

What are the disadvantages of net 30?

There are disadvantages associated with net 30 invoice terms. For a start, many small businesses can’t afford to wait 30 days to receive payment. In addition, some businesses take advantage of net 30 terms by sending late payments. If this is the case for your business, issuing stricter payment terms could be a good idea.

Is net 30 right for my business?

Ultimately, the suitability of net 30 terms for your business comes down to cash flow. If your business has plenty of cash on hand, multiple clients, and you can survive a couple of late payments, then extending net 30 invoice terms can be a great way to build up a substantial client base. However, if you depend on one or two large clients and your business doesn’t have a particularly healthy cash flow, offering net 30 terms may not be the right option for you.

What are the alternatives to net 30 terms?

You don’t have to offer net 30 terms, and many smaller businesses choose not to do so because it’s simply too long to wait to get paid. If you want to enforce faster payments, net 7 or net 15 might be a better option. On the other hand, if you’re happy to offer more generous payment terms to your clients, think about offering net 60 or net 90 terms.

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