Net 30 Payment Terms: What Are They, and When Should You Use Them?

It’s crucial for businesses to have clear payment terms to improve their cash flow. A study from Tide shows that around 36% of small businesses wait between 30 and 90 days to receive payments.¹

Clear and flexible payment terms may help a business get paid on time, and retain clients. This article will walk you through the benefits of Net 30 payment terms.

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What Are Net 30 Payment Terms?

Most small business owners will have heard of Net 30 payment terms. However, they may not be 100% familiar with the specifics. So, what does Net 30 mean in payment terms?

Net 30 payment terms state that a customer has 30 days to make a payment after they receive an invoice.

Net 30 payment terms are usually in the terms section of an invoice. It may also be helpful to tell your customers they need to make the payment within 30 days.

A recent Survey from Tide showed that the most popular method was paying the invoice 30 days after completion. 30% of small business respondents stated that they used this method.¹

Is Net 30 the Same as 30 Days?

Net 30 means the payment is due in 30 days, but you should also include other details. It’s essential for companies and customers to agree to the terms before beginning a contract. The 30-day period includes weekends and holidays.

🔍 Read on to find out:
How Is Net 30 Calculated? Net 30 Payment Terms: Example Pros and Cons of Using Net 30 Should You Use Net 30 Payment Terms? Net 30 Alternatives Get International Invoice Payments on Time With Wise

How Is Net 30 Calculated?

The main issue to consider is when the 30 days begin. The Net 30 payment terms meaning may vary in some cases. The payment terms of Net 30 can vary depending on the start date.

If payment terms are Net 30, the customer can pay you up to 30 days after the date you choose. It’s important for the company and customer to agree on this date. The beginning date can include the shipment date or the date that a company issues an invoice. Companies can also issue invoices before they begin working on a project.

If you communicate these terms upfront, you can avoid confusion and create a stronger relationship with your customers.

Companies can also offer a discount for early payments. For example, an invoice may say “4/10 Net 30”. In this case, the customer has to pay the invoice in 30 days. If they pay it in 10 days or less, they will receive a 4% discount.

Net 30 Payment Terms: Example

Net 30 payment terms may differ depending on whether a company provides a service or sells a product. The terms can also be flexible depending on the preferences of the company and the customer.

Physical Product: If a company sells a physical product, they could issue Net 30 payment terms. The customer would make payments 30 days after receiving the product. In this case, the company should specify that the 30-day period does not begin after they ship the product.

Services: If you provide consulting services for a company, you can also use Net 30 payment terms. You can require your customer to pay you 30 days after you issue the invoice. It may be easiest to issue an invoice after you complete the work.

Pros and Cons of Using Net 30

Although the benefits and risks of Net 30 may vary from business to business, there are many common benefits and flaws to note.

Pros

Some of the pros of using Net 30 terms include the following:

• These terms may make companies more likely to choose you over competitors with tighter payment terms
• Net 30 terms can help you build loyalty with customers
• Net 30 terms are flexible, as you can provide discounts for early payments

Cons

It’s also important to consider potential issues and setbacks that you may encounter when using Net 30 payment terms.

Below are some of the potential points to consider:

• It may be difficult to explain the terms to new customers
• You still run the risk of customers not paying you after 30 days
• A 30-day payment time may affect your cash flow

Should You Use Net 30 Payment Terms?

A recent study of 500 small business owners in the United States found that 85% viewed cash flow as the number one issue.² You should consider your cash flow needs before deciding payment terms.

Net 30 payment terms are good for companies who want to offer flexibility to customers without sacrificing cash flow. It’s important to clearly communicate the 30 day Net payment terms to avoid further delays.

If cash flow is a top priority for you, it may make sense to offer payment terms that are more favorable for you. However, it is best to make accommodations when possible. If you’re flexible, you may be more likely to retain clients.

Net 30 Alternatives

In some cases, it may be better to request payment at a sooner date to improve your cash flow. The payment terms of Net 30 may not always be the best fit.

You can either request for a customer to pay you sooner than 30 days. Some popular options to consider include the following:

• 15th of month following the invoice (15 MFI): An invoice sent on June the 20th would be due on July the 15th.
• Net 7 or Net 21: Customers would pay the invoice 7-21 days after the agreed upon date.
• Upfront payment: For example, you can require a customer to pay 50% upfront before you begin delivering the product or service.
• Immediate Payment: You can also request for the customer to pay the invoice on the same day that you deliver it.

🔍 Read the full guide to invoice payment terms to learn more

If you want to be more flexible, you can also offer a discount for paying early. For example, 3/10 Net 30 allows you to give your customer a 3% discount if they pay the invoice after 10 days.

If your business can handle the cash flow delay, this may be a smart move. Popular alternatives include Net 60 and Net 90, which requires the customer to pay the invoice after 60 or 90 days, respectively. If a customer has been with you for a long time, it may make sense to offer more flexible terms.

Get International Invoice Payments on Time With Wise

Wise Business can be a great option if your business needs to receive invoice payments in multiple currencies.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in 40+ currencies. You can also get 9 major currency account details for a one-off fee to receive overseas invoice payments like a local.

You can also use the free invoice templates and invoice generators from Wise. These resources can help you generate a Net 30 payment terms invoice. It’s also straightforward to add your account details to begin creating accurate and professional international invoices.

💡 For all you need to know about invoices, don't forget to read and bookmark the ultimate guide to invoicing from Wise!

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Sources:

1. Payment terms and late payments: an industry study | Tide Business
2. Late Payments Push 64% of CFOs to Modernize Accounts Receivables (pymnts.com)

All sources checked November 21, 2023.