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 Checkout.com can change the way you collect and stay on top of your incomings.
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:
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.
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:
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:
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:
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:
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 Checkout.com, 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.