What is Net 30 in Payment Terms?

New business owners learn very quickly just how much depth there is to an invoice. You have a variety of options regarding where and how you get paid that most people don't even think of. Net 30 is an example of one such invoice function that people usually don't give a second thought to.

Business owners need to be speculative when it comes to their cash flow. Often, the company is going to have creditors from which they still need to get paid. That is why invoices tend to include net 30 payment terms and similar “payment is due” terminology.

Net 30 in Payment Terms

Net 30 is a particular phrase that you can include on the payment terms of your invoice. It is used by vendors to specify the timeframe within which they wish to be paid. In the case of net 30, the payment period expected by the vendor is within 30 days.

It allows small businesses and freelancers to predict when they are going to get paid more accurately, which in turn allows them to create more accurate plans for their income. If they need the payment sooner, then they can use different net terms, instead of net 30

As a business owner, you need to understand terms like these, so we've put together a comprehensive guide telling you all about adding Net 30 to your invoices.

What Does Net 30 Mean?

Paid net 30 terms are technically a credit term. It implies that a product or service has been provided, with the expectation of payment at a later date.

It is also worth mentioning that the use of net 30 implies you expect payment in full within 30 days, with no applied discounts. For various cash flow reasons, small businesses and freelancers may offer a small percentage discount if they receive payment on or before the “net” day, in which case it would look something like this: “3% 30days”

Net 30 payment terms are not included on every invoice that you receive, but it is worth knowing that the term is legally binding. By agreeing to purchase the product or service outlined in the invoice, you are expressing consent to, for example, net 10 or net 30 payment terms, meaning that you acknowledge and accept that you have 10 days or 30 days to deliver the payment due.

Why Use Net 30 in Your Invoices?

Using net 30 terms is all about clarity within setting your payment terms. Net 30 explicitly informs the customer/client of how much they are expected to pay, and exactly how much time they have to do so, being within 30 days.

By clarifying when the net 30 payment terms are due, you avoid any sort of confusion or miscommunication about payment days.

Not only that but by printing the time within which you expect to be paid, you are substantially increasing the likelihood of you being paid when the payment is due. That level of certainty regarding outstanding debts is vital to small business cash flows, in which case owners are relying on that money for a specific purpose.

Consider Alternate Phrasing for Net 30 Terms

Having said that, the term “net 30” is an industry term, and not one that everyone is going to be familiar with. As a result, rather than writing net 30 on your invoice, you may be better off writing something along the lines of "payment is to be delivered within 30 days."

You should always be including payment terms in your invoices, though. Even if you don't operate off of a 30 days schedule, outlining terms allows you to set the days that payment is due, allowing you to plan out your small business operation more effectively.

Where to Put Net 30 in the Invoice

There are two places where you typically see net 30 on invoices. If you have a section at the top of your invoice that is dedicated to credit terms, then you can add it in there. If not, you can put it at the bottom along with your terms and conditions.

What is the Difference Between “Net 30” and “30 Days”?

There are two significant differences between “net 30” and “30 days”.

The first, which we've already briefly discussed, is that net 30 tells the payee that you are expecting to be paid in full for the product or service that you render. 30 days, on the other hand, can be accompanied by a percentage in the place of “net,” which indicates a discount applied to the total of the invoice if the payee pays on time.

The other difference is the payment period that each phrase is associated with. Suppliers generally use two types of payment systems. The first is the statement date. In this instance, the supplier collates all purchases within a month into a single statement that is issued out to payees. The second is invoice date, in which an invoice is sent for each order purchased. Net 30 terms payment is typically associated with statement payment periods, while due in 30 days is more commonly seen with a traditional invoice system.

Pros and Cons of Net 30

Pros

  • Clearly states the terms of payment for the payee
  • You are more likely to be paid on time
  • Allows for more accurate cash flow planning
  • Avoids any sort of miscommunication with payment
  • Outlines that you want to be paid within 30 days

Cons

  • May come off poorly if not used correctly

What is Net Amount on an Invoice?

There are two primary terms used within finance regarding the total amount of a financial document: net and gross. These terms are also used on invoices.

The terms are used to differentiate between the total amount owed before any sort of tax and government deductions. Gross is the total amount before that said dedication, the net payments definition is the amount afterward.

As such, net takes on two different meanings on an invoice. The first is the "net 30" that we've been discussing, which is a way to outline payment terms. The other is the total amount owed on the invoice.

Is Net 30 for Business Days Only?

From a legality side, no. Net 30 accounts for 30 calendar days, including weekends and holidays. However, the start of the 30 day period only begins once all services have been provided, or all products have been dispatched.

What is Net 15?

Similarly to net 30, net 15 is a form of credit trade that outlines the amount expected to be paid in full within an expressed amount of days. In the case of net 15, that number is 15 days.

Net 15 is near identical to net 30 payment terms, with the only difference being the number of days in which the payment is due. The terms net and number are payment specific, meaning that you can have a net 30 invoice and a net 15 invoice due for the same service. However, it is standard practice for a business to maintain a consistent period within which payment is sure.

What is Net 10?

Net 10, in the same vein as net 15 and net 30, is a member of a group of payment terms that outline when a payment is due. In the case of net 10, it is within 10 days. Net 10, net 15, and net 30 all serve the same function on an invoice, with the exception of the length of time provided to pay the amount credited.

Rather than simply be payment terms and conditions function, net 10, net 15, net 30 payment terms actually function as a form of credit. It implies that goods and services have been provided and that the payee has been credited for those until a 30 day time period has passed, or in the case of net 10, within 10 days.

Do You Offer Net 30 Terms?

Setting the due date for a payment isn't as simple as slapping “net” followed by a set number of days on an invoice. You see, setting due dates in advance like this is actually a form of trade credit.

Trade credit has its ups and downs, as well as a process by which you introduce them, so understanding the full picture here is vital to recognizing whether or not you are wise to use credit.

Operate Like a Bank

Think of a credit card. Do banks offer cards to people that are unable to pay back the money they borrow? No, and you shouldn't be willing to, either. This isn't to say that you need to perform a credit check on any customer looking for a due date in the future, but you need to be able to judge who is and isn't trustworthy with credit terms.

If you are unsure, a person or company is good for the money; then, there is a credit checking process that you can follow. First, if the customer has expressed interest in a credit-related due date, have them fill out a credit application. Credit applications are simple, requiring information such as a company name and address, banking relationships, trade references, and supplier references.

After that, follow up with the references the customer has provided, as well as with the credit application. If they do not want to fill out an application form, you can, and should, check a commercial report instead.

After all of that is said and done, you can decide whether or not you want to allow your client or customer to take a due date set in the future, and be credited to your company.

What if You Can't Wait?

A typical situation small businesses find themselves in is having a client that wants a net 30 day contract. Meanwhile, the company has outgoings that it needs that money to cover. There is one solution to that type of scenario, and it's called invoice factoring.

Invoice factoring is a process in which you sell an invoice to a factoring company, and in exchange, you receive the amount that you are owed on the invoice. While a business shouldn't make a habit out of this, it can serve as a great get-out-of-jail-free card with clients that insist on having a net 30 agreement with you.

There is one other thing that needs to be considered, though, and that's how factoring companies make their money. Unfortunately, when you sell an invoice to a company like this, you get paid the full amount owed, minus a small percentage fee. This is usually only one to two percent but can be substantial depending on the circumstances.

Once the transaction has been complete, the factoring company collects the payment from the creditor on the invoice, ending up with that one to two percent fee in profit.