What Is a Net 30 Payment Term? Definition for Small Business (2023)

Before delivering a product and service, issuing an invoice, and getting paid, one of the most important details you have to discuss with your clients is your payment terms.

You’ve probably heard many businesses use net 30, as their go-to payment term. But what exactly is net 30, and should you use it for your small business accounting?

That’s what we will be answering in this guide, along with everything else you need to know about the net 30 payment term.

Read on to learn about:

  • What Is Net 30?
  • When Does a Net 30 Start?
  • The Advantages of Net 30
  • The Disadvantages of Net 30
  • Should I Use Net 30 for my Small Business?
  • Net 30 FAQ
  • Automate Invoicing with Accounting Software

What Is Net 30?

Net 30 is a payment term in which the client has 30 calendar days to pay back the business, after the billing date, for the service or products they purchased. In simpler terms, a net 30 term gives the buyer 30 days to pay back, after they receive the invoice.

In essence, it’s a form of trade credit extended to clients. For that reason, you have to record the transaction as debt under accounts receivable.

If you want to learn more about the elements of an invoice, and how to create one from scratch, check out our guide on making an invoice.

Is Net 30 the Same as Due in 30 days?

No, they’re not exactly the same thing.

Net 30 means that the client can get a discount if they pay back before the deadline.

While when the payment terms state “due in 30 days”, this benefit doesn’t apply. It simply tells the buyer they have 30 days to make the invoice payment.

(Video) What Is Net 30?

What Does Net 30 EOM Mean?

EOM stands for the end of the month. So, if the payment term is net 30 EOM, it means that the customer has 30 days to pay back, after the end of the month when the invoice was sent.

For example, if you invoice your client with a payment term of net 30 EOM on October 13th, the payment will be due on November 30th - 30 days after October 31st.

What does 2/10 Net 30 Mean?

As we previously mentioned, some businesses offer discounts to their clients who pay back earlier.

When the buyer offers a 2% discount for clients who send payment within 10 days, it’s written in the invoice as a ‘2/10 Net 30’ payment term.

This can be switched up to whatever type of discount you want to give out. For example, a 3% discount for customers who pay back within 10 days, would be ‘3/10 Net 30’, and so on.

When Does a Net 30 Start?

Usually, net 30 starts after you send the invoice. However, net 30 can also begin 30 days after the sale or 30 days after the delivery of the product or service.

It all depends on the type of invoice you’re issuing, what you have agreed upon initially with the client, and how generous you’re willing to be regarding the deadline.

Whatever the case may be, make sure to clearly communicate it to the buyer, and write it down on any contract you signed with them, as well as the final sales invoice.

The Advantages of Net 30

Incentive to Buy

The main advantage of the net 30 credit term is that it creates an incentive to buy.

When you give clients some breathing time to pay, you increase their willingness to buy from you, since they have the extra time to collect the cash.

Ability to Offer Discounts

Net 30 payment terms allow you to offer early payment discounts to clients. These discounts encourage clients to pay you back on time and it helps the business keep a steady cash flow. And at the same time, by offering discounts, you can attract a larger customer base.

(Video) Payment Terms Overview for Small Businesses

Remain Competitive

If most of your competitors are offering net-30 credit terms, but you’re still demanding clients for up-front payment, that harms your ability to stay relevant in the marketplace. In these cases, switching to net-30 can help you remain competitive.

Builds Trust and Customer Loyalty

When you offer a net 30 payment term, you show your clients that you trust them. This helps you form good relationships with them and in the long run, creates a loyal customer base.

The Disadvantages of Net 30

Net 30 is a great option for medium to large-sized companies. They can usually afford to wait 30 days, because of the high number of customers and income coming into the business.

For smaller businesses, on the other hand, the net 30 payment term can put their finances on the hot spot, fast.

Extended credit terms can put your business in a financial situation where there might not be enough cash flow to pay back liabilities. So, if your small business’ only source of income is a handful of customers, don’t offer net 30.

Also, it’s recommended to avoid using net 30 when dealing with new clients, since you don’t know when or if they’ll be able to pay you back.

Should I Use Net 30 for my Small Business?

Again, it all depends on how much money you have on hand, the number of buyers, if it's the usual payment term for your business/industry, and most importantly, how generous you can afford to be with your consumers.

If you have heaps of cash saved up, several different customers, and can handle a few missed fees, net 30 is a great option and can help you attract new customers.

But if that’s not the case, and you’re relying on just 3-4 buyers, giving net 30 terms may open up a lot of cash flow issues, especially if they pay late.

Net 30 FAQ

Should I Give All My Clients Net 30 Payment Terms?

No, you don’t have to give all your clients the same net 30 payment term.

We’d recommend using net 30 for clients you’ve already built a relationship with, or for products and services that have a high cost/value, which might need some time to compensate.

(Video) Net 30 Explained - What's the Deal with Net 30?

Does Net 30 Include Weekends?

Net 30 means 30 calendar days, not business days.

So, yes, both weekends and holidays are included.

Do All Businesses Use Net 30?

No, not at all. Businesses are free to choose whatever payment term best suits their industry, products, and clients.

For instance, businesses working in retail rarely extend credit to their customers. If you buy a latte at your local coffee shop, you’ll most likely have to pay right there on the spot.

Net 30 isn’t convenient for small businesses with few clients, either. 30 days can be a long time to wait if your only source of income comes from two or three customers.

Is a Payment Term and the Due Date the Same Thing?

No, they’re not the same thing.

The due date states the exact date when an invoice is due, for example: “Due on December 31st”. While payment terms specify the time period the client has to pay back, along with any early payment discounts.

What Are Some Alternatives to Net 30?

If you want to reinforce earlier payments than 30 days, net 7 or net 15 are great options.

But if you’re looking for longer credit terms, you can try out net 60 and even net 90, which are most common for large and expensive projects.

Automate Invoicing with Accounting Software

Use accounting software like Deskera to create and send out invoices with just a few clicks!

Deskera offers over 100+ free templates, which you can easily fill in and customize to your brand with the preferred color scheme, business logo, signature, font, and more.

(Video) NET30 vs NET60 vs NET90 Payment Terms for Freelancers

What Is a Net 30 Payment Term? Definition for Small Business (1)

Then, just press Share and export the document in whatever format you prefer: PDF, DOC, or XLS.

And done! Your invoice has arrived and it’s ready to get paid!

What Is a Net 30 Payment Term? Definition for Small Business (2)

But wait, that’s not even the best part!

Deskera’s comprehensive Sell dashboard allows you to manage and overview your invoices, all in one place.

From there you can get a glimpse of the customer, the amount due, invoice due date, and whether payment has been received yet.

What Is a Net 30 Payment Term? Definition for Small Business (3)

From that same dashboard, you can set up recurring payments, advance payment requests, and receive immediate automated notifications for any past due invoices.

What Is a Net 30 Payment Term? Definition for Small Business (4)

Still not sure Deskera is the right choice for your small business accounting?

Well, luckily you can give the software a try yourself right away, with our completely free trial. No credit card details required.

Key Takeaways

And that’s a wrap! We hope our guide was helpful in deciding whether or not net 30 is the right payment term for your business.

For a quick recap, let’s check out the main points we’ve covered:

  • Net 30 means the buyer has 30 calendar days to pay back for purchased goods and services. This could mean 30 days after:
    • The sale
    • Products were delivered
    • Sales invoice was issued
  • When the payment term is ‘Net 30 EOM’, it means that the customer has 30 days after the end of the month to pay back an invoice.
  • A “2/10 Net 30” means that if the client pays back within 10 days, they get a 2% discount.
  • Advantages of net 30 include:
    • Offers an incentive to buy, and attracts new clientele
    • Discounts encourage early payments
    • It can help you remain competitive in the market
    • Builds trust and great relationships with customers
  • For small businesses with very few clients, and not many sources of income, net 30 can be a risky decision.

Related Articles

What Is An Invoice Number And How To Generate It - Guide With ExamplesBeing a business owner is great - but only if you get paid on time. And in orderto get paid on time, your business needs a well-organized invoice managementsystem [/blog/invoice-management-system/] that tracks and reviews your finances. Numbering and differentiating your invoices correctly, is an…Deskera BlogDeskera
Accounting For Startups - The Entrepreneur’s GuideEstablishing a startup can be overwhelming work. And as a founder, you probablydon’t have time to worry about sending invoices [/blog/send-an-invoice/] orbalancing the books. However, it’s still crucial to have some general knowledge of the fundamentalsof accounting. After all, no matter how gr…Deskera BlogSaurabh

FAQs

What does net 30 payment terms mean? ›

What does net 30 mean on an invoice? In the U.S., the term “net 30” is one of the most common payment terms. It refers to a payment period, meaning the customer has a 30-day length of time to pay the total amount of their invoice. Other common net terms include net 60 for 60 days and net 90 for 90 days.

What is the difference between 30 days and 30 days net? ›

In most cases, there is no difference between “net 30” and “due in 30 days” as they appear on an invoice, since both indicate that your customer is responsible for paying the invoice within 30 days. The only time these two terms differ is if you're offering a discount along with the net 30 terms.

What is net term payment? ›

Net Terms. "Net" means that the full amount is due for payment. Thus, terms of "net 20" mean that full payment is due in 20 days. The term may be abbreviated to "n" instead of "net".

How do you explain payment terms? ›

Payment terms outline how, when, and by what method your customers or clients provide payment to your business. Payment terms are typically associated with invoice payments. They are an agreement that sets your expectations for payment, including when the client needs to pay you and the penalties for missing a payment.

How does a net 30 account work? ›

A net-30 account is a type of business line of credit. With net-30 terms, you'll have 30 days to pay outstanding invoices without accruing interest or being charged a late payment fee. Some companies offer early payment discounts if you pay upfront instead of net-30 terms.

Why do companies use net 30? ›

Another component of an invoice is the time given to the buyer to pay the bill. For example, a business can use the term "Net 30" to show that a customer must pay within 30 days from the date the invoice was sent.

How is net 30 calculated? ›

Net 30 end of the month (EOM) means that the payment is due 30 days after the end of the month in which you sent the invoice. For example, if you and your client agree to net 30 EOM and you invoice them on May 11th, that payment will be due on June 30th—in other words, 30 days after May 31st.

How do you negotiate with net 30? ›

This negotiation should start at the beginning of a relationship with a new customer. Assuming that net 30 days is the industry standard, you could simply tell the customer upfront that you will require payment to be made in 10 or 15 days instead of 30 in order to do business together and see what the reaction is.

Do you have to use net 30 accounts every month? ›

Once you open an account with a vendor, you must consistently use it. For example, when you receive a $500 Net 30 credit line, you must make purchases from that vendor each month for a period of at least a year.

How do you negotiate net payment terms? ›

Ask for the most

Be reasonable in your ask, but aim to ask for the higher end of what you need. This is a negotiation, meaning there will be some back and forth as come to terms that work for both parties. For instance, if you need more time than your normal 30-day payment terms, ask for 60 days.

How do you calculate net payment terms? ›

Begin counting days from the invoice date. A quick formula is 100% – discount % x invoice amount. 100% – 2% = 98% x $500 = $490. This means your business would save $10 for a total payment of $490 if you paid between June 1st – 10th.

Is net 30 business days only? ›

What is Net 30 on an Invoice? 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.

How do business firms decide payment terms? ›

Tips to Decide the Payment Terms for Your Business
  1. Check each client's credit history (pull a business credit report if you can). ...
  2. Gear payment terms to the amount of the invoice. ...
  3. Set clear terms and fees in every contract and your invoices so there's no confusion as to when you expect payment.

Which payment terms are best? ›

Top 10 Payment and Invoicing Terms You Should Know
  • Payment at the time of service. ...
  • Due upon receipt. ...
  • Deposit required. ...
  • Recurring. ...
  • 50% deposit required. ...
  • Cash on delivery (COD) ...
  • Invoice factoring. ...
  • Some suggestions for using payment terms.
18 May 2022

Can my LLC affect my personal credit? ›

Situations Affecting Personal Credit

There are a few situations when a bankruptcy filed by a corporation, limited partnership, or LLC might affect your personal credit report. If an LLC has debts in its name, only the credit of the LLC is affected. The exception is if a member of the LLC guarantees the loan.

When should I pay off my net 30 account? ›

Net 30 billing is an invoicing term that means the recipient of an invoice is expected to pay it in full within 30 days of the date it was received.

How early should I pay my net 30 account? ›

Normally, you should pay your net 30 invoices within 30 days of the invoice date to build business credit. Payments are sometimes due 30 days after purchases are made, work is complete, or some other event takes place. In any event, it's a good practice to pay as soon as possible.

What happens if someone doesn't pay net 30? ›

If the customer has 30 days to pay, and the invoice isn't paid within this time, then charge your customer a late fee. There may be laws governing how much your late fees can be, so it's wise to check your local rules before approaching customers.

What happens if you pay net 30 late? ›

Typically net 30 payment terms include an interest penalty that begins accruing on the 31st day if payment is not made. Some eCommerce platforms, like BlueCart, can even include late fee penalties automatically in their invoices.

Do you have to pay for net 30 accounts? ›

Are there any membership fees to join a net 30 vendor? Some vendors charge annual fees for their net 30 vendor accounts. This is marketed as a fee for the upkeep of reporting your payments to credit bureaus. However, some net 30 accounts are free, and others only require one-time fees instead of annual or monthly fees.

How do you write net 30 On an invoice? ›

For example, an invoice with credit terms of net 30 can offer a five percent discount on invoices paid within 10 days. This is written as “5/10, net 30.”

What is a reasonable settlement offer for debt? ›

It depends on what you can afford, but you should offer equal amounts to each creditor as a full and final settlement. For example, if the lump sum you have is 75% of your total debt, you should offer each creditor 75% of the amount you owe them.

How should you respond when a customer asks for extended payment terms? ›

  1. Talk it out. Don't avoid the conversation; doing so only risks creating the expectation that the request has been approved. ...
  2. Offer incentives. ...
  3. Consider financing. ...
  4. Consider negotiating. ...
  5. Explain your business. ...
  6. Just say no. ...
  7. Know your customers.
14 Jun 2016

What is a reasonable amount to negotiate salary? ›

Start with a figure that's no more than 10-20% above their initial offer. Remember, you're applying for entry level, and you shouldn't expect something on the higher range. Consider negotiating lower if 10-20% places you above the average.

Whats a good credit score for a business? ›

Businesses are ranked on a scale between 101 to 992, with a lower score correlating to a higher risk of delinquency. A good Business Credit Risk Score is around 700 or higher.

How much credit should you use or stay below each month? ›

A good rule of thumb is to keep your credit utilization under 30 percent. This means that if you have $10,000 in available credit, you don't ever want your balances to go over $3,000. If your balance exceeds the 30 percent ratio, try to pay it off as soon as possible; otherwise, your credit score may suffer.

Can you pay a net 30 account with a credit card? ›

Customer may submit payment via credit card, ACH, or check. An additional 1.75% per month interest charge (21% annual percentage rate) will be charged on all invoices not paid within 30 days.

How do you tell your customers to pay upfront? ›

State clearly how much you want to receive in an upfront payment, how much work that covers (in percent or hours) and when you expect the deposit to be paid. Let the client know that the deposit is a way to secure the both of you.

How do you convince a client to pay upfront? ›

How to get your clients to pay you upfront
  1. Establish & maintain a professional presence.
  2. Charge a Set Fee Per Project.
  3. Work out a Payment System.
  4. Make them an offer they can't refuse.
  5. It starts with asking.
29 Jun 2018

How do you offer a payment plan to customers? ›

When setting up your payment agreement:
  1. Review your customers history before you call.
  2. Have two or more options for payment arrangements in mind before the call.
  3. Repeat everything to the customer.
  4. Get it in writing and have your customer sign it.
  5. Follow up and follow up.

What are standard net terms? ›

In the most basic sense, net terms are deferred payment terms offered to customers who are seeking extended periods of time to pay for their goods and services. Essentially, net terms provide your customer with a grace period before an invoice is due.

Are payment terms based on invoice date? ›

Invoice payment terms are the contractually-agreed terms of payment between a business and a customer. Commonly, invoice payment terms - or just payment terms - refers to when payment is due, relative to the date in which goods or services were delivered, or when an invoice was delivered.

Why is it important to determine the payment terms to be assigned to your vendors? ›

Why negotiating payment terms can help. Negotiating better payment terms means you can keep more cash in your business and improve liquidity, so you'll be in a better place to pay bills and avoid having to go overdrawn or seek loans. Better cash flow can also mean a better credit rating. It reduces your risk, too.

How can my business offer net 30 terms? ›

How to offer net 30 terms to your customers. Businesses offer net 30 terms to their customers in their invoices in their due dates. If an invoice to a customer is dated March 15th and the payment due date is April 15th, then a business has offered that customer net 30 payment terms.

What is the standard payment terms on invoice? ›

Unless you agree a payment date, the customer must pay you within 30 days of getting your invoice or the goods or service. You can use a statutory demand to formally request payment of what you're owed.

What are the best invoice payment terms for businesses? ›

What are the popular invoice payment terms used by businesses?
  • PIA- Payment in advance.
  • Net 7, 10, 30, 45 or 60 days- It means payment is expected within 7, 10, 30, 45 or 60 days from the invoice date.
  • CIA- Cash in advance.
  • COD- Cash on delivery.
  • EOM- End of month.
  • CBS- Cash before shipment.
10 Jan 2022

Should payment terms be on a quote? ›

Setting payment terms begins before you provide the goods or services. Put your payment terms on your website and on any quotes that are sent. When you invoice, make sure your invoice template has your payment terms laid out clearly.

What is the best method of payment for a small business? ›

Credit Cards and Debit Cards

In fact, 75% of customers say they prefer using debit or credit cards to make payments. Even though making credit card payments as a customer is a simple process, there are a few things to keep in mind when choosing which ones you'll accept as a small business owner.

What is the most commonly used payment term? ›

Most companies will set payment terms to ensure that they're paid on time, the most popular terms being 30 days (or Net 30).

What are 3 factors you should consider when choosing a payment type? ›

4 essentials to consider when choosing a payment method
  • Total cost of ownership.
  • Customer preference.
  • Involuntary churn & failed payment rates.
  • Trust and safety.
  • Conclusion.

What is the most reliable form of payment? ›

Debit or credit cards are generally regarded as the safest. If you are paying by card, it is important to verify that the provider of the payment gateway is a company who is regulated, and has the right accreditation such as PCI Level 1.

How long should you give a client to pay an invoice? ›

You needn't feel bad about giving shorter invoice payment terms. Close to 75% of invoices ask for payment within 2 weeks, so expectations are changing. Some customers may expect longer payment terms for bigger bills, but you may be able to negotiate with them.

What is the easiest mode of payment? ›

1. Credit Cards. Credit cards offer a quick and convenient way to make financial transactions both large and small. With a credit card, clients use a set credit limit from the company issuing the card to make offline and online purchases.

What happens if you miss a net 30 payment? ›

3/10 net 30: With this discount term, the buyer can receive 3% off should they pay their bill within the first 10 days. However, if they fail to do so, they'll need to pay the full amount with no discount within 30 days.

What do payment terms 1/10 net 30 mean? ›

The 1%/10 net 30 calculation is a way of providing cash discounts on purchases. It means that if the bill is paid within 10 days, there is a 1% discount. Otherwise, the total amount is due within 30 days.

What do the terms 2/10 net 30 mean? ›

2/10 net 30 is a trade credit extended to the buyer from the seller. A buyer will receive a 2% discount on the net amount if they pay the invoice in full within the first ten days of the invoice date. Otherwise, the full invoice amount is due in 30 days without a discount.

What does the term 5/15 net 30 mean? ›

A small business can also offer a discount to incentivize clients to pay by the requested date. For example, an invoice with credit terms of net 30 can offer a five percent discount on invoices paid within 10 days. This is written as “5/10, net 30.”

How early should you pay your net 30 account? ›

Normally, you should pay your net 30 invoices within 30 days of the invoice date to build business credit. Payments are sometimes due 30 days after purchases are made, work is complete, or some other event takes place. In any event, it's a good practice to pay as soon as possible.

When should you pay your net 30? ›

Net 30 end of the month (EOM) means that the payment is due 30 days after the end of the month in which you sent the invoice. For example, if you and your client agree to net 30 EOM and you invoice them on May 11th, that payment will be due on June 30th—in other words, 30 days after May 31st.

Does 30-day payment terms include weekends? ›

The 30-day period includes weekends and bank holidays (non-working days) and essentially provides the customer with a form of credit as goods or services are delivered before payment is due.

What are the normal payment terms when paying an invoice? ›

Net 30 is the most common type of payment term that is included on an invoice. Net 30 means a customer must pay the total invoice amount by the date 30 days from when the invoice is sent. Sometimes businesses will offer customers a net 10, 20, or 60 day payment period depending on when they want to be paid by.

When a company offers credit terms of 2/10 net 30? ›

2/10 net 30 means that if the amount due is paid within 10 days, the customer will enjoy a 2% discount. Otherwise, the amount is due in full within 30 days.

How do you calculate a 2/10 net 30 discount? ›

What is 2/10 Net 30? 2/10 net 30 means that buyers are eligible to get a 2% discount on trade credit if the amount due is paid within 10 days. After those 10 days pass, the full invoice amount is due within 30 days without the 2% discount according to the terms for 2/0 net 30.

What are 2% net 60 terms? ›

2/10 net 60 and 1/10 net 60 mean the customer must pay the invoice within 10 days to receive a 2% or 1% discount, respectively, or pay the full invoice amount within 60 days.

What is the opposite of net 30? ›

Net 30- Payment is due 30 days after invoice is received. Net 60- Payment is due 60 days after invoice is received. Net 90- Payment is due 90 days after invoice is received.

What does the term 3/15 n 30 mean? ›

Credit terms:

3/15, n/30. means you get a 3% purchase discount if payment is made within 15 days. or the net (full) amount is due in 30 days. n/eom. means that the net amount is due at the end of the month.

What is the meaning of 3/10 in the credit terms 3/10 n 30? ›

The terms of 3/10, n/30 means that if the customer pays the invoice within 10 days then they will receive a 3% discount. Otherwise, the invoice is due in 30 days. The $2,000 of merchandise that was returned needs to be deducted from the original amount of $20,000 sold.

Videos

1. What are Invoice Payment Terms and How to Set Them?
(FitSmallBusiness)
2. Easy Business Credit Builder Optional Net 30,60,90 payment terms BizCreditCentral
(Credit KAE -Crypto and Finance)
3. 1%/10 net 30 | Birdicus Business | Business Dictionary | Accounting | Corporate Finance |
(Birdicus Business)
4. Introducing Alibaba.com Payment Terms
(Alibaba.com)
5. BUILDING BUSINESS CREDIT FROM STRATCH: 5 NET 30 ACCOUNTS FOR NEW BUSINESSES | TEAM TIGGIO
(Team Tiggio)
6. Create A Payment Terms List - Free QuickBooks Tutorials
(FreeQuickbooksLesson)
Top Articles
Latest Posts
Article information

Author: Aron Pacocha

Last Updated: 01/11/2023

Views: 5862

Rating: 4.8 / 5 (68 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Aron Pacocha

Birthday: 1999-08-12

Address: 3808 Moen Corner, Gorczanyport, FL 67364-2074

Phone: +393457723392

Job: Retail Consultant

Hobby: Jewelry making, Cooking, Gaming, Reading, Juggling, Cabaret, Origami

Introduction: My name is Aron Pacocha, I am a happy, tasty, innocent, proud, talented, courageous, magnificent person who loves writing and wants to share my knowledge and understanding with you.