The term “net 30” is one of the most common payment terms in the US. In short, it’s a payment period. This means that a customer has 30 days to pay the total amount of their invoice. There are other common net terms, such as net 60 and net 90.
But are net 30 payment terms ideal for your business and should you open a net 30 vendor account?
In this article, you’ll find out everything about:
- Net terms
- Net 30 vendor accounts
- Pros and cons of net 30
- Similar terms
- Net 30 alternatives
Without further ado – let’s jump in!
How do net 30 payments work?
If you’re running a B2B company, whatever industry you’re in, you’re responsible for determining your payment terms.
While some businesses require payment in advance or payment at the time of service/sale – there is an option to allow customers to pay later. Essentially, you give your customers short-term financing or trade credit without interest.
But in the end – it’s only invoicing. And that’s how the majority of businesses view net 30 payment terms.
Who offers net terms?
You’re determined about net 30 terms and you’ll sure it will suit your business. But the question here is – who offers net terms?
In short – vendors like The Red Spectrum are specialized legal entities that offer their customers net 30 terms.
For every single customer, we ensure they can easily open their net 30 vendor account and grow their credit limit.
For example, if you’re looking to open a net 30 vendor account, The Red Spectrum is one of the best options on the market. Just by completing your first purchase, we’ll open a net 30 vendor account for your business and give you a $3500 credit limit for a start.
This means that you’ll have 30 days at your disposal to pay the invoice.
And for every next purchase – you’ll get a $1500 credit limit increase.
What are 2/10 net 30 terms and how to calculate them?
In short, 2/10 Net 30 is a trade credit offered to a customer for a certain sale. But what does 2/10 Net 30 actually mean?
If the amount due is paid within 10 days, the customer will have a 2% discount. If the amount due is not paid within 10 days, the amount is due in full within 30 days.
If you’re more of a visual type of person – here’s the image explaining it.
Let’s see how it works on an example.
A customer has purchased $1000 from Company A on the terms 2/10 net 30. They pay the full amount within 10 days, but they don’t need to pay $1000.
In this case, they’ll need to pay → $1000 x 0.98 = $980
If the customer pays after 10 days, they’ll need to pay the full amount of $1000.
What does 3/10 net 30 mean?
Same as the previous example. 3/10 net 30 refers to a trade credit offered to a customer for a certain sale.
In this case, if the amount due is paid within 10 days, the customer receives a 3% discount. But if the amount due is not paid within 10 days, the customer needs to pay the full amount of the invoice.
In case the customer pays everything within 10 days, they’ll need to pay → $1000 x 0.97 = $970
Net 30 on an invoice – what does it mean?
As we noted at the beginning of this article – net 30 refers to one of the most common payment terms. It’s a payment period, meaning the customer has 30 days to pay the total amount of the invoice.
So, if you’ve received an invoice on 1 June, you’ll need to pay in the next 30 days, or to be exact – by 1 July.
This term is widespread in the US, while in the UK, it’s a bit different.
In the UK, the invoicing term is “net 30, by the end of the month”, which means that the invoice is due at the end of the month following the invoice. For example, if you’ve received an invoice in June, you’ll need to pay it by the end of July.
In essence – the vendor sends you the product or performs a service and then requests payment in the next 30 days.
Can you pay net 30 early?
The short answer is – yes. You can pay net 30 early. And if the vendor offers 2/10 net 30 or 3/10 net 30 payment terms, you’ll actually prefer to pay your dues early.
You can pay the invoice anytime in this 30-day period, and sometimes, you’ll even be enticed to pay earlier.
For instance, if your vendors offer you 2/10 net 30 payment terms, you’ll want to pay the invoice in the first 10 days.
It’s simple. You’ll get a 2% discount if you pay in the first 10 days. So, if your business got invoiced for $5000, you can easily get $100 discount if you pay it in the first 10 days.
Sometimes, vendors will offer you different payment terms, but keep in mind that paying net 30 early is always a good idea.
But what if you pay late? So, the 30 days have passed, and you still paid your invoice. What happens now?
For example, you can get a penalty rate of 1%. So, if the initial amount of the invoice was $1000, you’ll need to pay $1010 just because you’re late with the payment.
Every vendor can define a different set of rules for early and late payments, but make sure you keep track of your finances and pay everything on time.
When does net 30 start?
Usually, net 30 starts at the moment of the invoice date. For example, if you’ve ordered something and the date on the invoice says 7 July 2022, your net 30 starts exactly on 7 July 2022. You have 30 days starting from 7 July 2022 to pay the invoice.
If there’s a shorter payment term, this might mean that you have a certain number of days to pay the invoice after you receive it.
In any case, your contract and all invoices sent will contain all of the information you want to know regarding a specific purchase.
What are the pros and cons of net 30 payment terms?
You’re thinking about offering credit terms to your customers? There are certain advantages and disadvantages of net 30 payment terms you’ll want to know.
Here is a full list.
What are the benefits of using net 30 payment terms?
Here’s a list of benefits you’ll experience using net 30 payment terms.
- More easily secure new clients
- Provide an extra incentive for your customers to buy
- Create an early payment discount for your customers
- Remain competitive in your industry
- Build customer loyalty
Let’s go through each benefit separately.
1) Easily secure new clients with net 30 payment terms
Offering your customer net 30 payment terms can be a huge win for your business. Many of your customers will appreciate the option to buy now and pay later, especially customers with a cash flow problem.
2) Provide an extra incentive for your customers to buy with net 30 payment terms
Sometimes, your customers need a few days to gather the money to pay your invoice. And this is a pretty common occurrence. Getting the payment upfront or at the time of sale is often difficult.
But if you’re offering net 30 payment terms, your customers will find it much easier to bear the expenses. They’ll have 30 days to pay the invoice, meaning they will have 30 days to gather the money needed to cover the invoice.
3) Create an early payment discount for your customers
Let’s say that you want to avoid any cash flow problems. Providing your customers with an early payment discount may be a great method for your business to get the money much quicker than in 30 days.
If you offer your customers 2/10 net 30 payment terms, you’ll be on a good track to get your cash back much quicker. And customers will have the opportunity to save money by paying back early.
So, if your customer wants to pay the full amount of the invoice within the first 10 days, they will get a 2% discount. This results in the customer saving 2% and you getting the money back in less than 10 days. We can say this would be a win-win situation.
4) Remain competitive in your industry by using net 30 payment terms
If you’re competing in a tough industry, offering your customers net 30 payment terms can give your business a competitive edge. If your competitors are already offering net 30 terms to their customers, it would be wise to offer the same.
And if you’re in an industry where your competitors aren’t already offering net 30 terms, you can make big waves in your space by introducing net 30 payment terms.
5) Build customer loyalty by offering net 30 terms
If a customer has purchased a product from you and has paid the invoice in the first 30 days, you’ve made the first step towards securing a loyal customer.
What they’ve experienced here is – they got your product the moment they asked for it. And then they paid for the product 30 days later. There’s a good chance that the customer used the product to help them generate some revenue.
And in that case – you’ll most likely have a well-satisfied customer, and there’s a great chance that this customer will place another order.
Offering net 30 terms is a great way to build trust between your business and your customer, so keep this in mind.
But are there any disadvantages of using net 30?
This is the real question you’ve been wondering about. And yes – there are some disadvantages to offering net 30 payment terms to your customers.
Here’s a list of disadvantages you may experience by offering net 30 payment terms.
- Cash flow problems could emerge
- Lower profit margins in case of early payment discounts
- More manual work for your staff
- Payment terms may be unclear to your customers
- Customers may refuse to pay on time (or at all)
Let’s go through each potential disadvantage separately.
1) Cash flow problems could emerge by offering net 30 payment terms
If you’re tight on cash and have limited cash flow, you may reconsider your choice to offer net 30 payment terms to your customers.
But if you feel that you must offer net payment terms to remain competitive in your industry, consider net 10, or net 15. This will help you bring in more payments much faster.
2) You could have lower profit margins if you offer early payment discounts
Instead of offering net 10 payment terms to your customers, you could offer 2/10 net 30 payment terms for example.
But this here is a trade-off. To entice users to pay you earlier, you’ll need to offer them a small discount if they pay within the first 10 days.
If you’re already working with thin margins, providing discounts may not be the best choice for your business.
3) Offering net 30 payment terms means more manual work for your staff
And this is a fact. It takes more time to invoice a customer, post a discount if you’re offering one, and record all the payments.
Also, there could be even more work if you need to follow up with a late-paying customer and handle the money collection. If you have the resources needed to do all this, that’s great. But if you’re currently lacking in time and manpower, reconsider the choice of offering net 30 payment terms.
4) Payment terms may be unclear to your customers
Even if you’ve communicated your net payment terms as transparently and accurately as possible, there will always be some questions coming in from your customers.
Here are the questions you might expect:
- Does the 30 days period start when I receive the invoice or when the invoice is created?
- Is payment due 30 days from purchase or 30 days from today?
- Does the 30 days period start when I receive the purchased product?
- If you aren’t offering any discount, why are your payment terms net 30?
To avoid all these questions, the easiest thing you can do is communicate “due date” instead of “net 30”. This makes it easier for customers to understand exactly when the invoice needs to be paid.
5) Customer may refuse to pay on time (or at all)
Now, this is the real issue. No matter how good your offer is, there will always be customers that are late with their payments – or they don’t even want to pay you in the first place!
Again, this means more work for your staff, and even then – they still may not pay the invoice. There are some additional measures you can take in this kind of scenario, and you’ll want to be prepared for that.
Are there any alternatives to net 30 payment terms?
Yes, there are several alternatives to net 30 payment terms you could look into.
Many smaller businesses decide not to offer net 30 terms because it’s simply too long for them to wait to get paid. But there are other net payment terms you could offer your customers.
For instance, offering net 7 payment terms or even net 15 payment terms may be a good option to provide your customers instantly with a product or a service – and still collect the money in a short period.
But if your business has great cash flow and you’re comfortable offering more generous payment terms to your customers, net 60 or 90 terms may be a good way to move forward.
Payment terms examples – all the lingo you need to know
There are tons of payment terms available, and here’s a list of the most common ones.
The list of common invoice payment terms
Here’s the full list of 21 common invoice payment terms:
- PIA – Payment in advance
- Net 7 – Payment seven days after the invoice date
- Net 10 – Payment ten days after the invoice date
- Net 30 – Payment 30 days after the invoice date
- Net 60 – Payment 60 days after the invoice date
- Net 90 – Payment 90 days after the invoice date
- EOM – End of month
- 21 MFI – 21st of the month following invoice date
- 1% 10 Net 30 – 1% discount if payment received within ten days otherwise payment 30 days after the invoice date
- COD – Cash on delivery
- Cash account – Account conducted on a cash basis, no credit
- Letter of credit – A documentary credit confirmed by a bank, often used for export
- Bill of exchange – A promise to pay at a later date, usually supported by a bank
- CND – Cash next delivery
- CBS – Cash before shipment
- CIA – Cash in advance
- CWO – Cash with order
- 1MD – Monthly credit payment of a full month’s supply
- 2MD – Monthly credit payment of a full month’s supply plus an extra calendar month
- Contra – Payment from the customer offset against the value of supplies purchased from the customer
- Stage payment – Payment of agreed amounts at stage
The list of discount payment terms
Here’s the full list of 17 common discount payment terms:
- Accumulation discounts – Discounts for large purchases
- Coupons – These have certain terms, such as a certain quantity has to be purchased or if the customer is past a certain age
- Disability discount – Offer to customers with a disability
- Discount card – Issuing cards that give certain customers or any customer a discount
- Educational or student discount – Usually given to students, but may go to educators
- Employee discount – Offered to employees
- Forward dating – Moving the invoice date forward so that the payment is made after receipt of goods
- Military discount – offered to members of the military and family members
- Partial payment discount – When a seller needs cash flow, he may offer a partial discount
- Preferred payment method discount – Some retailers give customers a lower price if they pay with cash. This saves the fee the retailer pays on credit cards.
- Prompt payment discount – The wholesaler or manufacturer gives a discount to the retailer at the list price or catalog price. This sometimes applies to promotions.
- Rebates – A refund mailed to the purchaser after a purchase
- Sliding scale – This discount is calculated on a person’s ability to pay. This is common with non-profit organizations.
- Seasonal discount – Usually this is given during a slack period when sales are down.
- Toddler discount, child discount, or kid discount – This covers free or discounted prices for children under a certain age. There is usually a requirement that an adult pays full price.
- Trade discount – Payments for functions such as shelf stocking, warehousing, or shipping
- Trade-in credit – A discount for something that is returned
As you can see, there are a ton of payment terms you can offer to your customers. Take time and decide which payment terms the best suit your business. One of the most important things you’ll need to take into account is – your cash flow.
So make sure you have enough cash reserves if you’re looking to offer net 30 payment terms.
Open your net 30 vendor account in just a few clicks
You’re looking to build your business credit and become a vendor that offers net payment terms to your customers?
The Red Spectrum is the best possible place to start your journey. When you complete your first purchase, we’ll instantly open a net 30 vendor account for your business.
This means that you’ll have 30 days to pay your invoice. And the best thing is – you’ll receive a $3500 credit limit just to start!
With every next purchase you make on our website, we’ll increase your credit limit by $1500.
Find out more about how we can help you improve your credit score and open your net 30 vendor account in just a few easy steps!
If you have any questions regarding net 30 accounts and net 30 payment terms, feel free to visit our FAQ page or simply contact us directly!