Understanding Payment Terms: Net 30, Net 60 and More explained

Net payment terms play a critical role in managing cash flow and fostering strong business relationships between suppliers and retailers. These terms specify the time frame within which a buyer must pay for goods or services after receiving an invoice. The most common net terms are Net 30, Net 60, and Net 90, where the number refers to the number of days a buyer has to complete payment. These terms help manage cash flow, provide flexibility to buyers, and influence relationships between businesses.

In this guide, we’ll explore how net payment terms work, the differences between Net 30, Net 60, and Net 90, and how growing wholesale brands can set beneficial payment terms with the retailers they work with.

What Are Net Payment Terms?

Net payment terms are essentially agreements between a supplier and a buyer, outlining the maximum number of days the buyer has to pay after receiving an invoice. These terms can vary depending on industry norms, the size of the business, and the relationship between the two parties.

The most common options include:

• Net 30: Payment is due 30 days after the invoice date.
• Net 60: Payment is due 60 days after the invoice date.
• Net 90: Payment is due 90 days after the invoice date.

The agreement offers flexibility to buyers, allowing them time to sell products or collect revenue before paying suppliers, which helps with cash flow management.

Differences Between Net 30, Net 60, and Net 90

Each type of net term has advantages and potential drawbacks, depending on the business context:

• Net 30: This is the most common and widely accepted payment term. It gives buyers 30 days to settle their invoice. Net 30 is popular because it strikes a balance between allowing customers time to manage their cash flow while ensuring that the seller receives payment relatively quickly. Wholesale suppliers often prefer Net 30 because it minimizes the risk of delayed payments while offering retailers a reasonable grace period.
  
• Net 60: Net 60 terms give buyers more time—up to 60 days—to make their payment. This term is more common in industries where larger orders are involved, or for well-established clients with reliable payment histories. Suppliers offering Net 60 terms should ensure they have enough working capital to manage their operations while waiting for payment.
  
• Net 90: The longest of the typical payment terms, Net 90 offers buyers 90 days to complete their payment. It’s less common but used in specific situations, such as larger wholesale orders or deals with high-profile clients, government contracts, or long sales cycles. While these extended terms can attract large retailers, they require substantial working capital and pose a greater risk for the supplier, who must wait three months to receive payment.

How Net Payment Terms Work

When businesses agree on net payment terms, an invoice is issued after the goods are delivered or services are provided. The buyer then has the agreed-upon period to pay, starting from the invoice date. For example, if the invoice is dated September 1st and the terms are Net 30, payment must be received by October 1st.

To encourage early payments, some suppliers offer discount terms, which are discounts for early payment. For example, “2/10 Net 30” means the buyer can take a 2% discount if they pay within 10 days, otherwise, the full amount is due in 30 days. This can be an effective incentive for timely payments.

How to Set Beneficial Payment Terms for Your Business

As a growing wholesale brand, setting the right net payment terms is crucial for maintaining a steady cash flow while nurturing good relationships with your retail partners. Here are steps to help you establish the best terms for your business:

Consider your industry
Net 30 is standard across many industries, but the right payment terms for your business may depend on industry practices. For instance, retailers often expect extended terms like Net 60 or Net 90, while small businesses and startups may lean towards Net 30 to ensure quicker cash flow.

Assess your cash flow
Evaluate your cash flow needs. If your business requires more immediate cash to cover operating expenses or expand inventory, shorter terms such as Net 15 or Net 30 could be preferable. However, if you can afford to extend the payment window, longer terms like Net 60 or Net 90 can attract larger retailers or clients, giving them more time to manage their finances.

Analyze your client’s payment history
Tailor your terms to the reliability of the retailer. If a client has a solid history of on-time payments, offering them Net 60 or Net 90 terms might be reasonable. However, if a client has a history of late payments, it may be safer to stick to shorter terms like Net 15 or Net 30.

Factor in order size
Larger orders might warrant longer payment terms, allowing your retailer time to move the product before settling the invoice. Conversely, smaller orders can justify shorter terms. Flexibility based on order size helps maintain healthy cash flow while accommodating your client’s needs.

Consider offering early payment discounts
Offering early payment discounts (e.g., “2/10 Net 30”) can incentivize clients to pay faster, improving your cash flow without compromising on flexibility. Many businesses find that even a small discount encourages timely payments.

Include late payment fees
To protect your business, consider charging late fees for payments not received by the due date. This discourages retailers from delaying payment and helps mitigate the financial strain caused by overdue invoices.

Why Choosing the Right Net Terms Is Essential

Selecting the right payment terms can impact your cash flow, client relationships, and overall business stability. Offering terms like Net 30 helps maintain consistent cash flow and customer loyalty, while extended terms such as Net 60 or Net 90 can attract larger buyers with longer sales cycles.

For growing brands, the key is finding a balance between offering competitive terms that attract clients and ensuring your business has enough working capital to operate smoothly. By carefully evaluating your industry, cash flow, and client history, you can implement terms that benefit both your business and your retail partners.

Setting clear and appropriate net payment terms is essential for fostering strong, lasting relationships with your retail partners while safeguarding your business’s financial health.