In business, net 30 is a term used on invoices to describe the deadline for payment of an invoice. Net 30 means that payment is due within 30 days of when the invoice is received. Essentially, a seller who sets payment terms of net 30 is extending 30 days of credit to the buyer after goods or services have been delivered.
Net 30 means that the buyer has 30 calendar days after they’ve been billed to remit payment.
To extend net 30 payment terms in an invoice, a seller simply needs to list the phrase ‘net 30’ within the payment terms section of the invoice. The seller then completes the rest of the invoice as normal, then delivers the invoices to their customer after goods or services have already been delivered.
In a perfect world, the customer would then always pay the invoice within that 30 day period. However, late payments still happen on a regular basis for small to medium businesses in every industry.
After the 30 day period has ended and payment still hasn’t been received, a seller can then escalate the issue with a demand for payment, and from there the next step may be legal action in order to ensure payment.
There is some confusion about when the net 30 period actually begins. Is it 30 days after goods or services were delivered? 30 days after the sale is agreed to? 30 days after the invoice is delivered?
The net 30 period generally begins on the day the invoice is delivered to the customer. So if goods were delivered on a Monday, but the invoice wasn’t sent until the following Wednesday, the customer has 30 calendar days from that Wednesday to send payment.
That said, the exact terms of a net 30 term in an invoice depends on the buyer and seller. It’s important to clarify with customers exactly what the term means in a specific instance, so there’s no confusion.
In order to encourage fast payment of invoices, some sellers will provide discounts for quicker payment. There’s a specific way to stipulate this potential discount in an invoice.
Let’s say that a buyer wants to provide a net 30 payment window, but in order to encourage even quicker payment, they want to offer a 3% discount off the total cost if the customer pays within 10 days. This would be marked on the invoice as ‘5/10 net 30.’ The first number signifies the percent discount, the second number signifies the time period for payment when the discount is available, and the ‘net 30’ signifies the overall deadline for payment.
A discount of 3% for payment within 15 days of a 30 day window would be written as: 3/15 net 30.
Net 30 terms are advantageous for sellers because they strike a balance between being generous and conservative. 30 days is plenty of time for a customer to approve, process and send a payment, but not so long that a payment may be delayed too long.
Net 30 terms are essentially an expression of trust between a business and their customer, communicating that the business is comfortable with longer payment terms because they know they can depend on the customer to pay.
With that in mind, some businesses are reluctant to offer net 30 terms to new customer without an established history of transactions.
There are disadvantages of net 30 terms for invoices. Namely, many small businesses simply can’t afford to wait 30 days between the costs associated with delivering a good or service and the receipt of payment to offset those costs.
Meanwhile, some buyers may take advantage of longer payment terms by letting deadlines go by without payment. After all, some of them figure, what’s a few extra days after 30 days of non-payment?
Net 30 has become a common standard for many businesses, but it’s by no means required. In fact, a seller has a right to request any payment terms— assuming the buyer also agrees. Terms of net 7, net 20, net 30, net 60, and sometimes even net 90 are relatively common.
That said, decisions about net terms in invoicing are and should frequently be conducted on a case-by-case basis. For example, compare two hypothetical customers. One has been a loyal buyer for several years, always paying invoices on time. The second customer has only been a customer for two months and has already missed two payment deadlines.
A business is more likely to extend generous net payment periods for the first buyer than the second.
Overall, net 30 or other net invoice payment periods are an opportunity for businesses to set standards for when they’d like to be paid after rendering goods or services to customers.
The content found here is for informational purposes only, and not for the purpose of providing advice, including but not limited to, financial, legal, or tax advice. Any opinion found here does not necessarily represent those of Bill.com.