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Understanding Net 30 Payment Terms: An Essential Guide for Business Owners

Net 30 payment terms are one of the most commonly used invoice payment terms, but whether they’re suitable for your business depends on various factors, such as your goals. On this page, you will learn about net 30 terms, get an overview of similar payment terms, and consider alternative options.

What’s the process for net 30 payment terms?

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If you run a business-to-business (B2B) company in any industry, it’s your responsibility to decide on the payment terms. Some companies demand upfront payment, while others require payment at the point of service or sale. Alternatively, you may permit your customers to make the payment at a later date, which technically involves providing them with short-term financing or offering one of the most popular forms of trade credit. Typically, this is done without charging interest, but most small businesses simply refer to it as invoicing.


What does the term “net 30” imply on an invoice?

Understanding Net 30 Payment Terms: An Essential Guide for Business Owners



In the United States, “net 30” is among the most widely used payment terms, referring to a 30-day period during which the customer must pay the full amount of their invoice. Other common net terms include net 60 for 60 days and net 90 for 90 days. Some businesses expect payment much earlier, and as a result, you may come across net payment terms of 10, 14, or 15 days.

In the United Kingdom, the invoicing term “net 30, end of the month” is also prevalent. This signifies that the invoice is due at the end of the month following the month in which the invoice was issued. For instance, if you receive an invoice in December, you must pay it by the end of January.


Net 30 terms may also be used to indicate discounts

Understanding Net 30 Payment Terms: An Essential Guide for Business Owners

At times, businesses wish to offer their customers the convenience of flexible invoice payment terms while also promoting prompt payment. In such cases, they may offer a discounted rate if the full amount is paid before a specific date prior to the due date. If the customer pays after the discount term, they are responsible for the net amount. For instance, a company may agree to wait for 30 days for payment but will incentivize early payment by providing a discount to customers who pay within the first week. The invoice or contract would indicate “5/7 net 30.”

What Are the 1/10 Net 30 Payment Terms?

An invoice may state that the buyer will allow the customer to pay within a net 30 payment period, but to encourage even faster payment, they may offer a 1% discount off the total cost if the customer pays within 10 days. This would be expressed as “1/10 net 30.” In this case, “net 30 payment” refers to the payment deadline, the first number (1) denotes the percentage discount, and the second number (10) indicates the period during which the discount is valid.

If you intend to bargain for a 2/10 net 30 discount with your vendors or sellers, here’s how the process works.

Calculations for 2/10 Net 30

Assuming you bought merchandise worth $1,000 on the 13th, you may qualify for a 2% discount if you pay the vendor’s invoice amount between the day it was issued, for instance, on the 5th, and on or before the 15th, which represents the 10-day timeframe for availing the discount.

If you do not comply with the payment terms of 2/10 net 30, i.e., fail to pay the discounted amount within the 10-day period, you will be responsible for the complete invoice amount without any discounts.

You can formulate your own payment terms following a similar approach. Just write them as (discount percentage)/(number of days in the discount period) net (number of days to make the complete payment).

For instance:

Discount (2%) x The Full Amount ($1,000) = Discounted Amount ($980)

When does Net 30 begin exactly?

Typically, net 30 payment refers to the customer’s obligation to pay within 30 calendar days from the invoice date. However, it could also imply 30 days from when the purchase is made, goods are delivered, or work is finished, among other things. For shorter terms, it may indicate days following the invoice’s receipt. Your contract and all invoices sent should specify the exact interpretation.

What are the benefits of using net 30?

Understanding Net 30 Payment Terms: An Essential Guide for Business Owners

Providing net 30 payment terms can be advantageous for various reasons.

Securing New Clients and Winning Bids: Often, businesses choose vendors based on their payment terms. Providing net 30 can increase the likelihood that they will select your services over those of a competitor.

Large companies often have a complex payment process: which may include requiring multiple approvals before an invoice can be paid. Additionally, some companies have set payment schedules that only allow payments to be made on a weekly, biweekly, or monthly basis. In order to work with such companies, businesses may need to offer flexible payment terms that accommodate their payment schedules. Failure to do so could result in losing out on the contract.

Customer Service: Providing customers with credit terms can be a way to strengthen relationships and enhance customer loyalty.

With Burst Biz, you’ll have more access to business credit cards and loans. The first step towards this is building your business credit. In that case, you’ll want to open a Net 30 Vendor Account with Burst Biz.

What disadvantages come with using net 30?

Small business owners may not realize that accepting payment after a service is provided or goods are delivered is essentially providing credit, which carries the same risks and disadvantages as offering a business loan.

  • Potential for Non-Payment: In some unfortunate cases, businesses may not pay at all even if credit has been extended. In such instances, the only available option may be taking legal action, but this may not always be feasible, particularly for smaller amounts.
  • Opportunity Cost: When you have extended credit, your available cash may be limited, preventing you from purchasing necessary supplies or services to grow your business or accept new work. As a buyer, you may also miss out on potential discounts from your own suppliers.
  • Affordability: Startups and small businesses frequently lack the financial resources to offer any form of credit.
  • Slower Cash Flow: Offering credit to customers can result in cash flow issues, particularly for smaller businesses that require prompt payment to maintain their operations.
  • Potential for Late Payments: Despite offering early payment discounts and late fees, some customers may still pay after the payment due date.


How can I assess when net 30 terms are appropriate for my company?

To determine if net 30 payment terms are suitable for your business, you need to evaluate the advantages and disadvantages of offering credit to your customers. If your business can afford to extend credit and doing so will help it operate or grow, offering net 30 payment terms may be advantageous.


Factoring can be an alternative option to offering net 30 terms for some businesses.

Small businesses often consider offering net 30 payment terms but may face drawbacks that prevent them from doing so. Invoice factoring can be a suitable solution in such cases. Factoring allows businesses to offer their customers flexible net terms and then sell their unpaid invoices to a factoring company at a discounted rate. The factoring company provides immediate payment to the business, and then waits for the customer to pay them.


Can I just use a “due by” date rather than net 30?

If you don’t offer your customers a discount, there isn’t any reason why you can’t use a specific due date rather than net 30.

What Does Net 15 Mean on an Invoice?

Payment of the net amount outstanding on the invoice is due fifteen calendar days after the date of the invoice.

When Does Net 30 Start?

Net 30 could mean 30 days after the sale, 30 days after delivery, or 30 days after the invoice.

Does Net 30 Mean 30 business days?

The client can pay up to 30 calendar days (not business days) after they have been billed.

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