The term “Net 30” simply means that your clients have 30 days from the time an invoice is generated to pay you in full. While the concept is straightforward, there’s actually a fair amount of conflicting opinions on whether it’s a good thing or bad thing for a business.
The term “Net” is often paired with 30, 60, or 90 and determines whether an invoice must be paid in 30, 60 or 90 days. While these are considered “standard” terms, it’s important to note that this is the same thing as extending your clients credit when you’ve already provided them with goods or services, and you allow them to pay you some time after rather than paying at the time of delivery. You should be thinking of it as an interest-free loan your company is providing.
Net 30 is Better for Business Than Net 60 or Net 90
Most businesses expect payment within 30 days of invoicing, but some give their clients 60 or 90 days. Larger companies might have the ability to shoulder the burden of longer periods, but even then, it isn’t necessary to offer extended cycles. Small and midsize businesses typically can’t afford to go past 30 days.
You Can Customize Your Net to Your Needs
Just because most businesses use Net 30 doesn’t mean you have to. You can establish shorter terms, like Net 15 or Net 21, giving your clients roughly two or three weeks to make their payments.
Your Net Can be Altered to Encourage Prompter Payments
In addition to shortening the terms, you can add in early payment discounts and late payment fees, too. For example, 3/10 Net 30 means you’re offering your clients a 3 percent discount if they pay within 10 days, but the total amount is due within 30 days regardless. While Net 30 terms mean the credit or loan you’re extending is not accruing interest, the rules can, and should, change after that. Include some form of late fee for those who do not meet their obligation within the specified time period.
Net 30 Can Be Good If…
- Your business is presently doing Net 60 or Net 90
- You pair it with a discount and penalty
- Your clients are diligent payers
Net 30 May Not Be the Best Idea If…
- Your clients are not creditworthy
- You cannot afford to wait 30 days
- Your clients could react poorly to shortened terms
Roll Out Changes with Caution
Your existing customers may not like the changes you’re making, particularly if they’ve been taking advantage of longer payment terms. Because a misstep in rolling out changes can result in loss of trust or issues with customers, it’s important to handle the matter with sensitivity.
- Consider alternatives, such as factoring, before changing the policies for existing clients
- Keep things positive by mentioning an early-payment discount
- Give as much notice as possible to provide your customers with time to adjust
- Experiment with low Net numbers for new clients and more relaxed terms like Net 30 for established good-paying clients
Explore Invoice Factoring if Net 30 isn’t a Good Fit for You
If your business is struggling with cash flow issues, moving to Net 30 terms can help. However, making the shift is not right for every business and, in some cases, simply doesn’t improve payment speeds enough. In these situations, selling your unpaid invoices to an invoice factoring company may be better. With invoice factoring, you can get payment in as little as 24 hours without creating animosity with your clients. You also don’t need to factor all your invoices, so it’s possible to factor just those of your existing clients while placing your newer ones on Net 15 terms. To learn more about how the process works, download our free factoring guide.