What is Net 30? Understanding Net 30 Payment Terms | Tipalti (2023)

Table of Contents

  • What is Net 30?
  • Understanding Net 30
  • When Does Net 30 Start?
  • Net 30 vs. Due in 30 Days
  • How Do You Use Net 30 Terms?
  • Examples of Net 30 Payment Terms
  • Pros and Cons of Net 30 Terms
  • Net 30 Alternatives
  • Should You Use Net 30 Payment Terms?
  • Importance of Net 30 Payment Terms

What is Net 30 on an Invoice?

In the U.S., “net 30” refers to a very common payment term that means a customer has a 30-day length of time (or payment period) to pay their full invoice balance. Net 30 payment term is used for businesses selling to other businesses, and the 30 days includes weekends and holidays.

As an incentive to get paid sooner, this payment term is sometimes paired with a discount if the customer or client pays before the 30-day net term.

Understanding Net 30

When you shop at a retail store and pay cash, there are no payment terms. You pay immediately.

(Video) What Is Net 30?

If you shop with a credit card, you pay the retailer, but the credit card company extends the terms. You have until the due date set by the credit card company to make a payment without a penalty. Fail to make that due date, and you pay interest on the purchase.

With the credit card, you have a payment term, or due date, to pay without penalty. It’s a formal way of creating an agreement between a buyer and seller about the timing of payments. You’re just missing an invoice.

But why even have a payment term?

Its origins go back to the days before transactions were automated. Back then, it could take 30 days or longer to review invoices, match invoices to purchase orders and goods receipts (if applicable), and generate payments. As a result, net 30 payment terms became a standard.

You can consider a payment term, also called a trade credit, as a no-interest loan to your customer. Instead of demanding immediate payment for a sale, with a net 30 payment term, you are lending your customers money for 30 days.

When Does Net 30 Start?

To offer Net 30 terms, you must have sufficient cash flow to float the equivalent of a 30-day loan. But when does net 30 start?

  • The date of the invoice?
  • The day your product shipped?
  • The day it reached your customer?
  • Some other trigger?

The start date of the payment term can be any one of those options. The key is to make sure the terms are agreed to upfront – before the sale is even made.

Consider this scenario:

  1. You send an invoice with net 30 terms.
  2. In your mind, the 30-day countdown starts on the date of the invoice.
  3. In your customer’s mind, the 30-day countdown starts on the date they received the invoice.

When the customer pays you on time, according to their understanding of the net 30 terms, you feel they have not honored the agreement. To you, they have made a late payment, so the relationship is strained.

How you resolve this misunderstanding will determine whether you retain that client. That’s why it’s important to precisely define when the clock starts ticking on your net 30 term. In most cases today, it starts at receipt of the invoice, regardless of the invoice date.

Net 30 vs. Due in 30 Days

Net 30 payment terms and “due in 30 days” generally refer to the same outcome: your supplier wants you to pay the invoice in one month.

(Video) NET30 vs NET60 vs NET90 Payment Terms for Freelancers

A net 30 payment term is common in B2B commerce, and is often combined with an early payment discount. You, as the customer, can pay the bill within 30 days to meet that term, or pay earlier for a discount if your supplier offers one. Due in 30 days more often applies to personal expenses such as utility bills, telephone bills, mortgage statements, and related expenses. In these cases, you have 30 days to pay the bill before incurring a penalty or surcharge.

With personal bills, the due date is typically called out as a specific date, so there is no confusion about when you need to pay. That removes any uncertainty over start dates relating to “due in 30 days.” In addition, personal bills rarely, if ever, offer a discount option for paying early.

How Do You Use Net 30 Terms?

When using Net 30 terms, here are a few things to consider:

Do your customers pay their invoices on time?If they do and your finances are healthy, there’s no incentive to include an early payment discount
How steady is your cash flow?If you are having cash flow issues, offering early payment discounts with the net 30 term can help accelerate revenue collection and improve your cash flow.
What are the payment terms used by other companies in your industry?You could implement shorter payment terms such as Net 15 or Net 20 and improve your cash flow if those terms are common in your industry.
When are your own bills due?If your account payable turnover is faster than your accounts receivable (you pay your bills faster but take longer to collect), that can lead to cash flow problems. You may want to consider tighter payment terms than net 30.
Who has the dominant position in the relationship?The financially stronger company often holds the advantage in payment terms negotiation; however, if a smaller supplier provides key products or services, that supplier can dictate payment terms.

Examples of Net 30 Payment Terms with Early Payment Discounts

While the net 30 payment term stays the same, the early payment discount offer can vary.

One common term is 2/10 net 30. Which simply means if the buyer pays the invoice within 10 days, they will receive a 2% discount.

Here are examples of net 30 payment terms combined with discounted rates for early payment.

2%/10 days, Net 30 terms (2/10 Net 30)2% discount if you pay within 10 days. That’s a 36% return on cash for the discount.*
1%/15 days, Net 30 terms (1/15 Net 30)1% discount if you pay within 15 days. That’s a 24% return on cash for the discount.
1%/10 days, Net 30 terms (1/10 Net 30)1% discount if you pay within 10 days. That’s an 18% return on cash for the discount.
1%/5 days, Net 30 terms (1/5, Net 30)1% discount if you pay within 5 days. That’s a 14.4% return on cash for the discount.
.5%/10 days, Net 30 terms (.5/10 Net 30).5% discount if you pay within 10 days. That’s a 9% return on cash for the discount.

*To calculate the annualized return of an early payment discount, divide the number of days you accelerate payment ahead of the due date by 360 (to represent the days in a year, rounded down), and multiply that number by the early payment discount rate.

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(Video) Net 30 Explained - What's the Deal with Net 30?

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Pros and Cons of Net 30 Terms

There are plenty of advantages to buyers and sellers for using net 30 terms.

Sellers may use it because it:

  • Meets customer expectations. Net 30 is a standard payment term.
  • Builds goodwill and conveys trust in your customers.
  • Standardizes cash flow and streamlines your budgets.
  • Attracts and retains new customers.
  • Reduces bad debt. Customers can usually pay within 30 days.
  • Builds revenues. Net 30 terms makes it easier for new and small businesses to buy goods and services, which translates into more business for the seller.

Buyers also have reasons to embrace net 30 payment terms:

  • Net 30 is interest-free vendor financing.
  • The ability to delay payment to 30 days improves a buyer’s liquidity.
  • Net 30 terms makes financial planning and budgeting easy (or at least easier).

There are also disadvantages to sellers using net 30 payment terms. These include:

For small businesses, freelance contractors, and businesses with little leverage, a net 30 payment term can evolve into net 45, net 60 or net 90, negatively impacting their cash flow.

If others in their industry have shorter payment terms such as 20, 15, or even pay in five days, the net 30 payment term presents a disadvantage.

Likewise, if the early payment discount offers an exceptionally high annual rate of return to the buyer, as shown in the table earlier, the seller would be paying a high interest rate in exchange for getting their cash sooner.

If you are a startup business, you may end up strapped by extending credit to your buyers. While giving them the benefit of time, you could be setting yourself up for failure if you don’t have the cash reserves to compensate for delays in payments.

(Video) What Is 1%/10 Net 30? | What Does 1%/10 Net 30 Mean in a Bill's Payment Terms?

Net 30 Alternatives

While net 30 has been a common payment term for business, for larger business-to-business customers, longer payment terms have become a standard. These include net 45, net 60, and net 90.

The benefits are obvious. Net 30 benefits the seller, as it accelerates the time it takes to recognize revenues compared to these other payment terms.

Conversely, net 90 payment terms greatly benefits the buyer, as the seller is essentially extending an interest-free loan for those 90 days, helping the buyer to improve its cash flow at the seller’s expense.

For some business transactions, there are no payment terms. Immediate payment is demanded at the time of purchase of the product or service. This typically would occur in a case where the buyer has a poor payment track record, or no record at all.

Should You Use Net 30 Payment Terms for Your Business?

To answer this question, you should know:

What is the standard payment term in your industry? If you are a new business or in a weak bargaining position, you may not be able to buck the standard. The net 30 payment term may be expected as the default.

If industry practice or your own research shows that you could improve your cash flow with a more favorable payment term, there’s no reason not to consider it. If you have leverage with your customers, or limited competition for your business, you would be in a better position to consider these different terms.

One other thing to consider is that one payment term does not need to fit all customers. You could negotiate distinct payment terms with different customers, and that could work to your financial benefit.

Importance of Net 30 Payment Terms

Net 30 payment terms help to generate business, as it is the equivalent of extending an interest-free loan to customers for those 30 days. It can lend a consistency to revenue recognition that may not be there with no terms at all.

Whether or not you offer net 30 terms depends in large part on your own company’s financial health. If you can afford to extend that payment term, it’s probably worth the goodwill it generates among your buyers.

Not only does it convey trust in your customers and offer them an opportunity to budget well, but the net 30 term could be standard in your industry, is usually readily understood, and often, expected.


For larger customers, the trend has been to draw out payment terms past net 30 to net 45, 60 and 90 days. In that case, you may have to fall in line with these payment terms as part of doing business.


How do you explain net 30 terms? ›

When a business offers “net 30 terms”, it's offering payment terms and allowing its customers 30 days from the invoice date to pay the amount due. Businesses that offer net 60 terms or net 90 terms give customers 60- and 90-days, respectively.

What do terms 2% net 30 mean? ›

2/10 net 30 is a trade credit extended to the buyer from the seller. A buyer will receive a 2% discount on the net amount if they pay the invoice in full within the first ten days of the invoice date. Otherwise, the full invoice amount is due in 30 days without a discount.

Why do companies pay net 30? ›

One of the most frequently used payment terms, net 30 is a credit term extended to your customers requesting that payment be made within 30 days of the invoice date. While net 30 can be used with a discount as an incentive for early payment, net 30 is also used without any discounts being offered.

What is the difference between net 10 and net 30? ›

The 1%/10 net 30 calculation is a way of providing cash discounts on purchases. It means that if the bill is paid within 10 days, there is a 1% discount. Otherwise, the total amount is due within 30 days.

How soon should you pay your net 30 accounts? ›

A net 30 payment term is common in B2B commerce, and is often combined with an early payment discount. You, as the customer, can pay the bill within 30 days to meet that term, or pay earlier for a discount if your supplier offers one.

How early should I pay my net 30? ›

Most of the time, net 30 means the customer must pay within 30 calendar days of the invoice date. However, it can also mean 30 days after purchases are made, goods are delivered, work is complete, and so forth. With shorter terms, it might also mean days after receipt of the invoice.

What does 1 10 N 45 mean? ›

Net 45 is a payment term used to state that an invoice must be paid within 45 days of receiving it. Sometimes, a vendor may offer early payment discount terms for paying sooner. An example is 1/10 net 45, meaning the customer pays the invoice within 10 days instead of 45 to earn a 1% discount.

What happens after net 30? ›

Net 30 means that payment is due within 30 days of when the invoice is received. Essentially, a seller who sets payment terms of net 30 is extending 30 days of credit to the buyer after goods or services have been delivered. Net 30 means that the buyer has 30 calendar days after they've been billed to remit payment.

How do you qualify for net 30? ›

Worth noting: To qualify for net-30 terms, your business must have a clean business history with no late payments listed on business credit for the past 6 months. It must be a U.S. based business, in business at least 30 days, with an EIN and active corporate filing with the state.

Can you pay net 30 with a credit card? ›

Customer may submit payment via credit card, ACH, or check. An additional 1.75% per month interest charge (21% annual percentage rate) will be charged on all invoices not paid within 30 days.

Do you have to use net 30 accounts every month? ›

Once you open an account with a vendor, you must consistently use it. For example, when you receive a $500 Net 30 credit line, you must make purchases from that vendor each month for a period of at least a year.

Is net 30 a line of credit? ›

A net-30 account is a type of business line of credit. With net-30 terms, you'll have 30 days to pay outstanding invoices without accruing interest or being charged a late payment fee. Some companies offer early payment discounts if you pay upfront instead of net-30 terms.

How many net 30 accounts should you have? ›

Net 30 accounts are used to build business credit and increase business cash flow. To build business credit, you need five net 30 accounts that report to the business credit bureaus. With a net 30 account, businesses buy goods and repay the full balance within a 30-day term.

Does net 30 have interest? ›

Net 30: What Is it? Net 30 is an invoice payment phrase that means the customer must pay the entirety of their bill in 30 days or fewer. Often if the customer does not pay within the 30 day period, interest is charged.

What is the opposite of net 30? ›

Net 30- Payment is due 30 days after invoice is received. Net 60- Payment is due 60 days after invoice is received. Net 90- Payment is due 90 days after invoice is received.

Should I pay off highest monthly payment first? ›

Conversely, the debt avalanche method can help you save money over time. By repaying your highest-interest debts first, you minimize the amount of total interest you'll pay during debt repayment.

What happens if I pay my credit card on the 30th day? ›

By federal law, a late payment cannot be reported to the credit reporting bureaus until it is at least 30 days past due. An overlooked bill won't hurt your credit as long as you pay before the 30-day mark, although you may have to pay a late fee.

Will paying early hurt my credit score? ›

Does Paying Off a Personal Loan Early Hurt Your Credit Scores? In short, yes—paying off a personal loan early could temporarily have a negative impact on your credit scores. You might be thinking, “Isn't paying off debt a good thing?” And generally, it is.

What happens if an invoice is not paid within 30 days? ›

If a payment has been missed, then you can claim interest and debt recovery costs, as governed by The Late Payment of Commercial Debts (Interest) Act 1998. And you're entitled to compensation, even if your invoice or payment terms didn't mention it.

What does ADF mean on invoice? ›

ADF stands for After Deducting Freight, and means that you are to deduct the freight portion of the invoice before calculating the discount (freight is not subject to discount terms).

What does ROG mean on an invoice? ›

Net due upon receipt of goods (or n/ROG)

However, if the terms are Net 30 ROG, that means payment is due 30 days after the receipt of goods.

What does 2 20 net 90 mean? ›

Examples of early payment discount terms are 2/10 net 90 or 2/20 net 90. To earn a 2 percent discount on the invoice balance, customers must pay within 10 or 20 days, depending on the credit terms.

How do I pay my net 30 account? ›

It's simple – all you need to do is stipulate “net 30” in the payment terms of your invoice. Then, after delivering the agreed goods/services to your customer, send across the invoice.

How to negotiate net 30? ›

This negotiation should start at the beginning of a relationship with a new customer. Assuming that net 30 days is the industry standard, you could simply tell the customer upfront that you will require payment to be made in 10 or 15 days instead of 30 in order to do business together and see what the reaction is.

Is Home Depot a net 30 account? ›

A Home Depot commercial account is a Net 30 account offered by Home Depot in partnership with Citibank. The account is exclusively for businesses and offers itemized billing statements, online account management, and flexible payment options.

Is Amazon a net 30? ›

Does Amazon Net 30 report to credit bureaus? No. You will need to pay for a Small or Medium Amazon Business Prime memberships which have Net 45 terms and Dun & Bradstreet reporting. If you can get approved for an Amazon AMEX Business Prime card you'll get Net 60 terms, along with D&B and SBFE reporting.

What's the smartest way to pay off a credit card? ›

If you want to get out of debt as quickly as possible, list your debts from the highest interest rate to the lowest. Make the minimum monthly payment on each, but throw all your extra cash at the highest-interest debt. This is sometimes called the debt “avalanche” method of repayment.

Can I max out my credit card and pay it in full? ›

Featured Topics. If you can max out a card and pay the full balance off on or before your next bill due date, your ratio won't be affected. That's because a credit card issuer only reports your information to the major credit bureaus once a month.

Is it OK to max credit card and pay it off? ›

Under normal economic circumstances, when you can afford it and have enough disposable income to exceed your basic expenses, you should pay off your maxed-out card as soon as possible. That's because when you charge up to your credit limit, your credit utilization rate, or your debt-to-credit ratio, increases.

How many years does an account stay on your credit report? ›

An account that was in good standing with a history of on-time payments when you closed it will stay on your credit report for up to 10 years. This generally helps your credit score. Accounts with adverse information may stay on your credit report for up to seven years.

What happens if you don't use your credit card every month? ›

If you stop using your credit card for new purchases, your card issuer can close or curb your credit line and impact your credit score. Your credit card may be closed or restricted for inactivity, both of which can hurt your credit score.

Does net 30 include weekends? ›

“Net 30” is a credit term used in business to signify that the full amount a client owes is payable within 30 days, including weekends and holidays, upon goods shipment or job completion.

What is NetCredit interest rate? ›

NetCredit: in the details

Loan Amount. $1,000 – $10,000. APR from. 34.00% – 155.00% Term lengths.

What stores offer net 30 terms? ›

25 Net 30 Business Accounts for 2023
  • Crown Office Supplies. A larger supplier of commercial-grade office supplies at affordable prices, Crown Office Supplies also offers mobile accessories and electronics. ...
  • Creative Analytics. ...
  • Office Garner. ...
  • Business T-Shirt Club. ...
  • Uline. ...
  • Quill. ...
  • Grainger. ...
  • Ohana Office Products.
Jan 3, 2023

How much money should you always have in your account? ›

The general rule of thumb is to try to have one or two months' of living expenses in it at all times. Some experts recommend adding 30 percent to this number as an extra cushion. To determine your exact living expenses, track your spending over several months, including all bills and discretionary spending.

How much money should I have in my account at all times? ›

Most financial experts end up suggesting you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that's about how long it takes the average person to find a job.

What is a good number of total credit accounts? ›

If your goal is to get or maintain a good credit score, two to three credit card accounts, in addition to other types of credit, are generally recommended. This combination may help you improve your credit mix. Lenders and creditors like to see a wide variety of credit types on your credit report.

What is the difference between 30 days and 30 days net? ›

What is net 30? Net days is a term used in payments to represent when the payment is due, in contrast to the date that the goods/services were delivered. So, when you see “net 30” on an invoice, it means that the client can pay up to 30 calendar days (not business days) after they have been billed.

What is the meaning of 2% 15 net 30? ›

a2% discount is offered if payment is made within15 days. a15% discount is offered if payment is made within30 days.

What do terms 1/15 N 30 mean? ›

1/15 net 30 date of invoice translates as. a) a 1 percent discount may be taken on 15 percent of the purchase if the account is paid within 30 days after the end of the month. b) a 1 percent cash discount may be taken if paid in 15 days; if no cash discount is taken, the balance is due 30 days after the invoice date.

How do net terms work? ›

In the most basic sense, net terms are deferred payment terms offered to customers who are seeking extended periods of time to pay for their goods and services. Essentially, net terms provide your customer with a grace period before an invoice is due.


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