Net 30 is one of the most common payment invoice terms you’ll likely come across. But what exactly does it mean? And should you use it for your business? This article will walk you through all the basics of the payment term net 30. Read on to find out!
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- What Is An Invoice: Definition, Types, And The Invoicing Process.
- 15 Effective Free Business Invoice Best Practices Must Follow.
What is net 30?
Net 30 is included in an invoice’s payment terms when a vendor wants to be paid within 30 days from the invoice date.
For example, if you send an invoice with a net 30 payment term to your customers for your products or services provided on January 1, 2022, it means you expect the payment before January 30, 2022.
Legally, net 30 refers to the 30 consecutive days following the date on the invoice. This does not just include business days, but also weekends and holidays.
Net 30 is a credit term that basically means you’re willing to lend your customers money. After delivering your goods or finishing your services, you then send an invoice to request payment. With a net 30, your customers are obliged to pay off the ‘debt’ within a maximum of 30 days.
Apart from net 30; net 10, net 15, and net 60; with due dates of 10, 15, and 60 days; respectively, are also common options for businesses.
Net 30 does not necessarily start on the invoice date
While most of the time the invoice date is chosen as the starting point of the payment period, you can negotiate and choose the most suitable time for you and your customers. It can be 30 days after the sale is made, 30 days after the goods are dispatched, or even delivered. Just ensure that you and your customers both agree on the date and make it crystal clear on your contract.
What does net 30 EOM mean?
Net 30 end of the month (EOM) means the payment is due 30 days starting from the end of the month the invoice was sent.
For example, if you invoice your customer on November 8, the payment will be due on December 30 – 30 days after the end of November.
What does 2/10 net 30 mean?
2/10 net 30 means your customers will get a 2% discount if they complete the payment in 10 days. So, if you have a $2000 invoice with 2/10 net 30 payment terms, your customer can pay $1960 (2% discount on $2000) in 10 days or pay the full $2000 within 30 days.
You can change the term to whatever is the best for your business. For example:
- 5/15 net 30: payment period is 30 days with a 5% discount if the customer pays within the first 15 days
- 10/20 net 60: payment period is 60 days with a 10% discount if they pay within the first 20 days
If you don’t want to wait the full 30 days to get your payments, offer your customers a discount using the above terms for early payment!
Benefits of using net 30
Using the payment term net 30 can benefit your business in many different ways. One undeniable advantage is it attracts more business. Good payment terms are an easy way to keep your company competitive because many clients select a vendor based on its payment policies.
Obviously, net 30 is a much better deal for them than an immediate payment. Net 30 is helpful to small businesses that don’t have much cash on hand. Additionally, net 30 or similar payment terms will open up opportunities for doing business with large companies. This is because big corporations often have lengthy payment processes due to the multiple layers of approval required in a company of that size.
Does every business use the payment term net 30?
No! Whether or not a business uses net 30 depends on various factors such as their business size or operational model. For example, businesses in the retail industry rarely give credit to their customers. If you want to get a Subway sandwich or a Big Mac from McDonald’s, you’ll have to pay immediately!
Some smaller, non-retail businesses are also not fond of net 30 simply because waiting 30 days for payment is too long and risky for them. They may use less favorable payment terms instead, such as net 10 or net 14, or they just don’t trade credit at all.
However, the payment term net 30 is really common among large companies and SMEs in fields like consulting, graphic design, and software development.
Is net 30 a good choice for my business?
To know exactly if net 30 is a good payment term for your company or not, you need to determine how much money you have readily available, how much cash you need to operate, and how many loyal clients you have to identify your stable sources of income. You should take a look at what other businesses in the same industry are doing to see if net 30 is beneficial to them.
If you have enough cash on hand, your operational costs don’t depend heavily on new money, and you have a large base of loyal clients, net 30 might be a good option to help you compete and take on some more business deals.
However, if your business hasn’t built a consistent and reliable cash flow rhythm, or you only have a few customers at the moment, using net 30 payment terms could easily bring you money and cash flow problems, especially if your customers pay late or worse—don’t pay at all.
Make sure you get an accurate analysis of your business’s finances before exploring all of the lucrative benefits of net 30.
How do I use net 30?
If you feel net 30 could work for your business, have a discussion with your customers and explain the new payment term arrangements with them, then write it into your contracts!
Just ensure both parties are well aware of the payment terms before starting the project. Make it crystal clear to avoid confusion and payment issues!
When it’s time to send the invoice, you need to state the payment term net 30 clearly on your invoice. You can also explain the term in plain English by writing “the due date is 30 days from the invoice issued date” with the specific due date written. It can help you avoid any unnecessary misunderstandings with your clients.
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