What Is Net 30? How it Works, its Advantages and Disadvantages

Net 30 is an accounting terminology that means invoices must be paid within 30 days. In most cases, it is part of the vendor’s payment terms, and the client has up to 30 days after the invoice date to pay the net amount to the vendor. 

Payment arrangements are important when offering credit terms to clients. In this article, we’ll examine how net 30 can be used in everyday business transactions.



What is Net 30 Payment Terms

Net 30: Examples

As an example, if an invoice is dated April 1 and the terms state net 30, the payment is due by April 30. Vendor wants to be paid in full within 30 days in this case. A vendor delivers a product or service first, and then requests payment from the customer at a later date.

The Net 30 always includes calendar days (i.e., business days, holidays, and weekends), not just business days, so make sure that is clearly stated in your contract. 

How Net 30 Works

When extending credit to customers, one of the most common terms is Net 30. Net 30 helps your business get paid on time and fosters a good relationship with long-term customers. Companies often select vendors based on their payment terms, so offering a net 30 can help you stand out from competition. 

The net 30 is often used in conjunction with a discount for early payment, but it can also be used without any discounts. Consider offering a 2% discount on invoices paid within 10 days, for example. Write it as 2/10 Net 30.

Net 30 terms are essential to include on invoices to help customers understand when you expect to be paid. This will prevent any confusion that may result in late payments. You may also write “payment due in 30 days” on an invoice rather than “net 30” to ensure that the terms are as clear as possible. The payment terms should always be as clear and consistent as possible on your invoices.   

When Does Net 30 Start?

Net 30 usually begins after you send the invoice. It can also begin 30 days after the sale or 30 days after the product or service is delivered.

It depends on what type of invoice you’re issuing, what you agreed to with the client, and how generous you want to be with the deadline.

Whatever the case may be, make sure you communicate it clearly to the buyer, and write it down on the contract you signed with them.

Related: What Does Net 30 Mean on an Invoice?

Is Net 30 the Same as Due in 30 days?

No, they’re not exactly the same.

Net 30 means that the client gets a discount if they pay back by the due date.

When the payment terms state “due in 30 days”, this benefit does not apply. It simply tells the buyer they have 30 days to pay the invoice.

What does ‘2/10 net 30’ mean?

Net 30 terms are usually combined with an early payment discount to encourage faster payment. For example, businesses may offer net 30 terms with a discount of 2% if the client pays within 10 days. The terms will appear as ‘2/10 net 30’ on contracts and invoices.

You can also change the terms if you want. For example, if you wanted to offer your client net 60 terms with a 5% percent discount if they paid within 15 days, you would write that out as ‘5/15 net 60.’

Types of Net Terms

The terms of payment for all customers may not be the same for all small businesses. For late-paying or new clients, you can extend net 60 or net 90 terms, while starting with net 10 or net 15 for trusted clients.

Service-oriented businesses and contractors frequently use net 10 and net 15 terms. The most common payment due-date terms are  Net 10, 30, and 60.

Need Net 30 payment terms? Check out our Net 30 Terms Vendors list. For even longer payment terms, see our Net 90 Vendors list. Manage cash flow and build credit with the right suppliers.

Related: What are Net 30/60/90 Terms?

Why do clients prefer net 30 accounts?

Beyond the obvious (extra time to pay their invoices and manage their cash flow), many new businesses establish net 30 accounts with their vendors to build business credit. A small vendor line of credit can help a new business build its credit score and access additional capital.

However, the strategy only works if vendors report their accounts to business credit bureaus like Dun & Bradstreet (D&B), Experian Business, or Equifax Business-and vendors aren’t required to do so.

Further reading:  Net 30 Vendors To Build Business Credit In 2022

Is Net 30 right for my business?

  • It depends on how much cash you have on hand, how many clients you have, whether it’s common in your industry, and most importantly, how generous you can be with your clients.
  • Net 30 might help you gain more clients if you have plenty of cash, have many different clients, and can tolerate a few late payments from them.
  • On the other hand, if you don’t have much cash on hand and are dependent on only one or two clients, offering them net 30 terms for their payments could lead to cash flow issues, especially if they are late.
  • When you’re starved for sales, it may be tempting to loosen your credit policies (also referred to as your credit policy) to extend credit to your clients. Don’t. How much and how long you provide credit to your clients will depend on your business’s specific situation, as well as how generous you are willing to be.
  • Consider asking clients to sign contracts that include interest for late payments if you’re just getting started or you haven’t developed a reliable cash flow rhythm. When a new client signs up and sees these terms, they’ll understand you’re serious about getting paid.


5 Advantages of using Net 30 Payment terms

If you are still undecided about offering credit terms, learning some of the benefits of using net 30 terms may help you settle your mind.

1. Expands your customer base

By offering net 30 terms, you can increase your customer base significantly, as many customers appreciate the 30-day payment option, particularly those who have their own cash flow issues.

2. Offers a strong incentive for your customers

The act of getting payment up-front or at the time of service is nearly impossible if you sell to larger businesses frequently.

Credit terms such as net 30 make it much easier for your customers to process your invoice and still pay you within the specified 30-day time frame.

3. Lets you add an early payment discount

Early payment discounts are one of the most effective ways to encourage customers to pay early. If you’re currently offering your customers net 30 terms, but you’d like them to pay a little faster, you can offer them a discount for early payment.

4. Helps your business remain competitive

It’s difficult to compete with other businesses in your industry if they offer net 30 terms to their customers but you still request upfront payment. It is not possible for every business to offer credit terms to all of its customers, but doing so can enable your business to remain competitive.

5. Builds customer loyalty

Credit terms can help build trust and loyalty with your customers, and might even result in a long-term relationship.

5 Disadvantages of using Net 30 Payment terms

Net 30 terms offer several advantages, but before you decide to offer them, make sure you are also aware of their drawbacks.

1. Can create cash flow problems

You may want to reconsider offering net 30 terms to your customers if your cash flow is limited. For small businesses with limited cash flow margins, waiting 30 days for customer payments might be too difficult.

If you feel you must offer credit terms to remain competitive, consider net 10, which will bring in payment much faster.

2. Discounts create thinner profit margins

If you attach a discount to net 30 terms, your profit margin will be even thinner. If you are able to reduce your profit margin in order to get paid faster, then you should. For businesses operating on razor-thin margins, discounting invoices may not be a good idea.

3. Can create additional work

Yes, it takes more time to invoice a customer, post a discount (if offered), and record a payment from a customer. You may be required to follow up with late-paying customers and even handle collections.

If you have the staff and time to do this, great, but if not, you may want to stick with your current payment plans.

4. Terms are unclear

Net 30 terms can be confusing to customers, who ask the following questions:

  • Do the 30 days begin when the invoice is received?
  • Payment is due 30 days from today or 30 days from the invoice date?
  • Do the 30 days begin when the product or service is received?
  • Why are billing terms net 30 when a discount is not offered?

5. Delinquent accounts become a reality

No matter how diligently you do your research, you will eventually encounter delinquent accounts. Having late payers creates a lot of extra work, and even with all that extra work, they may still not pay. As a business owner, you have to be prepared for that possibility.

Net 30 frequently asked questions

Do I have to offer my customers credit terms?

No, you don’t. You may find that doing so will increase your customer base and help you grow your business. This helps you remain competitive in the marketplace, particularly if your direct competitors offer credit terms to their customers.

Is it beneficial to offer a discount to my customers?

There are many factors to consider, including your current cash flow and whether or not offering a discount will have a negative effect on it. Even if you don’t want to offer a discount, but would like your customers to pay ahead of time, you can offer them net 10 or net 15 terms, or due upon receipt if you want to get paid even sooner.

Can I just use a ‘due by’ date rather than a net 30?

If you aren’t providing your customers with a discount, then you can use a specific due date rather than a net 30. Also, it can prevent confusion for customers who aren’t sure of when the 30-day period begins.

Are you ready to create your net 30 account?

As business credit experts, we strive to ensure a seamless and smooth experience for our clients. We work with businesses of all sizes and scopes. Our experts at Net 30 Accounts will help you to make the right decisions regarding your credit reports and your loan applications.

Related: Net 30 Vendors To Build Business Credit In 2022

Leave a Reply

Your email address will not be published. Required fields are marked *