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What are net payment terms?

What are net payment terms?

Sep 7, 2023

When you’re selling to a wide range of clients – often in many different countries around the world – it’s usually not providing the goods or services that’s the tricky part.

It’s receiving the payment – and a big part of this is the net payment terms you set.

Demanding payment on delivery, or in advance, can be a turn-off for buyers – especially if their processes are too complex, or their budget too small, for that to be possible. On the other hand, giving your clients too long to pay can result in cash flow issues for your business – so it’s a delicate balancing act.

To help, we’re breaking down what net payment terms are, how they work – and what pros and cons they offer for you, as a seller. We’ll discuss how these differ across industries and business types, help you understand how to set your net payment terms – and demonstrate how can change the way you collect and stay on top of your incomings.

Net payment terms explained

A net payment term is the agreed-upon period in which a buyer has to pay an invoice to a seller for goods or services they’ve provided.

Net payment terms come with a number – generally 30, 60, or 90, but sometimes as high as 180 – which refers to the amount of days the buyer has to pay up. Here, the term “net” simply means that payment is due within the timeframe specified – without any discounts or deductions owed.

Some examples of net payment terms include:

  • Net 30: payment is due within 30 days of the invoice date
  • Net 7/net 45/net 90: payment is due within 7, 45, or 90 days of the invoice date, respectively
  • Due on receipt: payment is due immediately, upon receiving the invoice
  • End of month: payment is due at the end of the calendar month the invoice was received (so if the invoice is dated April 4, payment is due by April 30)
  • Cash on delivery: payment is due when the goods are delivered
  • Payment in advance: payment is due before the goods or services are delivered
  • 5/10 net 30: payment is due within 30 days, but the buyer can access a 5% discount if they pay within 10 days

What does net 30 payment terms mean?

As a supplier or distributor, offering net 30 payment terms simply means that you’re giving your customer 30 days to pay for goods or services you’ve provided.

If you’re the one receiving the goods or requisitioning the service, it means you have 30 days – typically from the date of receiving the invoice for said work – to pay the supplier.

Net 30 payment terms are popular all round. They give buyers ample time to make payment in a way that safeguards their cash flow, while also meaning – at least compared to net 60 and net 90 payment terms – that the seller isn’t waiting too long for their money.

In this way, net payment terms that don’t require upfront or immediate payment are a form of short-term finance – usually without interest – given to the buyer, by the seller.

How do net payment terms work?

Net payment terms differ based on the business, industry, and the nature of work the supplier or the recipient of the service undertakes.

Some suppliers require payment in advance of the service delivery, or – in the case of most B2C companies selling directly to customers – immediately, at the point of sale.

Net 30 payment terms tend to be the most common. However, net 60 and net 90 terms (where the payer has 60 and 90 days to pay, respectively) are also common – particularly when a sale involves complex transactions, large-scale projects, or high-value contracts.

Longer payment terms – for example, up to net 180 – are more common in industries like:

  • Construction
  • Pharmaceuticals
  • Manufacturing
  • Engineering
  • IT services
  • Telecommunications
  • Energy

Advantages of net terms

Lengthier net terms are a good deal for the buyer. But, as a supplier, you have the health of your own cash flow to think about – so what’s in it for you?

Some of the benefits of offering your clients net payment terms include:

  • Winning bigger contracts: if you want to work with larger businesses (with deeper pockets), offering favorable net payment terms is a must. These companies tend to have more rigorous processes around processing, approving, and paying invoices – and, most of the time, are unwilling or unable to settle for shorter or more stringent terms.
  • Predictability: even though net payment terms may require you to wait 30 or 60 days to get paid, they still offer the knowledge that, by that date, you will be paid. This provides peace of mind, and allows you to better plan your budget and outgoings.
  • Building and maintaining strong client relationships: offering more flexible net payment terms isn’t just the key to winning new clients – but making sure they stick around, too. It can engender client loyalty, make for more robust relationships, and even make them more likely to recommend your services to other businesses.

Disadvantages of net terms

Despite their drawcards, when you’re selling – whether as a supplier, vendor, or wholesale distributor – longer net terms also have some drawbacks. 

Some of the disadvantages of net terms include:

  • Cash flow issues and delays: the obvious one is that, even though you’ve already delivered the goods or services, you have to wait for the money you’re owed. This can lead to delays in meeting your own financial obligations, such as paying employees, making investments, or settling your ledger with suppliers.
  • Administrative headaches: longer net payment terms can make debts you’re owed – particularly if they’re spread out across a large number of invoices – harder to keep track of and chase up.
  • A higher risk of non-payment: having to wait longer to be paid naturally increases the risk that financial issues may arise on the buyer’s side – problems that may, eventually, lead to their inability to settle the debt.
  • Inflation and currency fluctuations: if you’re selling to buyers in other countries, longer payment terms increase your risk of falling prey to adverse currency fluctuations – especially if they’re paying in their home currency, and a conversion is required.
  • Discount and opportunity costs: while you can offer discounts to encourage prompt payment, these still impact on your profit margin. What’s more, the cost of opportunity – that is, having money tied up in invoices you could otherwise be investing, or funneling back into your business – can have incremental, yet long-term, effects.

Which net term is the right one for my business?

As discussed, the right net term for your business will depend on your industry, the type of goods or services you sell, and who you sell to. (Whether to other businesses, or direct to consumers.)

The decision also rests on a careful appraisal of the pros and cons we’ve outlined above, and of your own financial circumstances – you may be just starting out, for instance, and simply unable to extend any form of credit.

Here are some helpful tips to help you understand which net terms will be best for your business:

  • Understand your cash flow: if your overheads need to be paid on a monthly basis, net 30 terms will be okay – but any longer, and you risk your incoming to outgoing ratio falling out of sync.
  • Research your industry: hit the books to find out which net payment terms similar businesses are relying on. This ensures you don’t risk losing out on opportunities by offering less favorable net terms than your competitors. And, by knowing what the benchmark is, you can even offer more flexible net terms to undercut them.
  • Consider the nature of your client relationships: offering more favorable net terms to longer-standing clients is an excellent way of staying on good terms with them. Conversely, you may want to err on the side of caution with newer clients as you establish the relationship – especially if they have a higher risk profile. helps you with automated payments

Invoicing, receiving, and managing payments is hard enough – and, when you’re offering longer net payment terms to enjoy better client relationships and win bigger contracts, it becomes even more difficult.

That’s why automating your incoming payments can help. Already a staple of businesses that rely on subscription-based models, recurring payments allow you to automatically charge your customer’s card – usually through a card-on-file arrangement – to accept periodic payments from the companies you sell to. They also enable you to offer payment plans to sellers struggling with cash flow – or even allow them to pay in installments via a buy now, pay later agreement.

Here at, our payment processing solution allows you to do all that, and more. Whether you rely on subscription-based payments – or simply the ability to maintain a reliable, robust way of collecting money you’re owed – we’ll help you automate the more taxing elements of the process. Empowering you to provide a consistent, cohesive payment experience – and keep your customers coming back for more.

Learn more about how your subscription-based business can benefit from recurring payments today – or contact our team for a friendly, no-obligation conversation.

Unlock your payments potential today

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September 7, 2023 15:12
September 7, 2023 15:13