Net 30 is a credit term that indicates when a payment is due for goods or services. It is typically included in the payment terms of an invoice and it means that the client has up to 30 days after the invoice date to pay the net, or the full invoice amount, to the vendor.
Payment arrangements are important when offering credit terms to customers. We’ll take a closer look at how net 30 can be used in everyday business transactions.
Definition and Examples of Net 30
Net 30 is a term that is used on invoices to indicate when a payment is due to the vendor. With terms of net 30, a customer has up to 30 days after the invoice date to pay the vendor.
If you’re using invoicing software or accounting software, you can enter the credit terms you want to extend to your customers.
As an example, if an invoice is dated April 1 and the terms state net 30, the payment is due on or before April 30. In this case, the vendor wants to be paid in full within 30 days. The vendor delivers a product or service first and then requests payment from the customer at a specific date.
Net 30 always includes calendar days (in other words, business days, holidays, and weekends), not just business days, so make sure the contract with your customers makes that clear.
How Net 30 Works
Net 30 is one of the most frequently used credit terms when extending credit to customers. It can help your business get paid on time and fosters a good relationship with long-term customers. Some companies will often select vendors to work with based on their payment terms, so offering net 30 can help to ensure that your business gets chosen over other providers.
While it is often used along with a discount for customers who pay early, net 30 can also be used without any discounts. For example, let’s say you want to offer a 2% discount on invoices that are paid within 10 days. You will write this as 2/10 Net 30.
Payment terms such as net 30 are essential to show on invoices, as they give a clear indication of when you want to be paid. This prevents any confusion that may also result in late payments. Instead of indicating net 30 on an invoice, you may also write “payment due in 30 days” to ensure that the terms are as clear as possible. Payment terms should always be as clear and consistent as possible on your invoices.
Net 30 always starts on the date of the invoice, which means payment is due 30 days from the invoice date.
One advantage of net 30 is that buyers are more incentivized to purchase if they have 30 days to pay. Delayed payment can be a benefit to some customers, similar to the way consumers use credit cards to make purchases in a store, as they can receive products or services without having to pay upfront.
Big businesses often extend generous trade terms of net 30, 60, or sometimes net 90 to their customers. These businesses usually have sufficient cash flow available to sustain their business operations while they wait for payments from customers. Offering trade credit also allows businesses to take on more customers and accommodate larger companies or customers that have lengthy payment processes.
Smaller companies typically can’t afford to extend more lengthy credit terms to customers, as this can cause cash-flow problems and lead to overdue payments.
Types of Net Terms
Some small businesses may not use the same payment terms for all customers. You may choose to extend net 60 or net 90 payment terms to trusted clients, while starting with net 10 or net 15 for late-paying or new clients. Service-oriented businesses and contractors often use net 10 and net 15. But net 10, 30, and 60 are the most commonly used net payment due-date terms.
You can also use net 30 end of the month (EOM), which means that the customer’s payment is due 30 days after the end of the month in which you issued the invoice. For example, if you invoice a customer on March 11, the payment will be due on April 30. In other words, 30 days after March 31.
- Net 30 indicates that the full payment is due, at the latest, by 30 days from the invoice date.
- Payment terms such as net 30 are critical to include on invoices, as they give a clear indication of when you want to be paid.
- Most small businesses use net 30 as their standard credit term.
- Net 30 end of the month means that full payment is due 30 days after the end of the month in which goods or services were delivered.