What Is Net 30?
Net D is an accounting term that defines the time within which a customer has to pay a merchant for goods or services. The number that replaces D after ‘net’ refers to the total number of days available for the client to complete payment.
- Net 30 Meaning: A customer has 30 days to pay from the date requested. For example, if you sent an invoice for the amount of $5,500 on March 1 with 30 days net payment terms, the client must pay you $5,500 on or before March 31.
Take a look at the following related terms: - Net 10: payment within 10 days
- Net 60: payment within 60 days
- Net 90: payment within 90 days
In addition to the net 30 billing definition, the following article will walk you through the benefits of adding this element to your system and three ways to use it for the overall success of your business.
Why Is It Important?
A billing term used mostly in context with invoicing for freelancers and small businesses, net 30 is a trade credit that specifies the total duration of time allowed for completion of the payment, not including any late payment fees. One of the biggest advantages of this method is its clarity. This enables you to avoid misunderstandings and create solid forecasts. Take a look at the following list of benefits, with examples.
Flexibility For Buyers
A net 30 invoice allows your clients to place an order right away, without paying for it immediately. For instance, if you pay for a coffee with your credit card, you are postponing the act of paying out of your pocket by letting the credit card company pay at this moment. As a customer, it creates a situation where an immediate purchase is easier to make while simultaneously benefiting the merchant too.
Better Cash Flow
Another advantage of using any type of net D notation is how it can improve the cash flow of small businesses. For example, if you have a set range within which you are due to be paid, you can plan your finances better and make purchases. Also, any late payments after the due date will accrue interest, as per your terms and conditions.
Unique Selling Point (USP)
When you offer flexible and more convenient payment options, you can gain an edge over your competition. For example, a customer may choose to buy from you rather than a different company, as you allow a certain number of days to complete payment. Immediate payment is always ideal, but closing a deal in a competitive market is also extremely important.
How To Use It
Net 30 is popular among businesses of all sizes. The following points describe the ways you can use these payment terms in your invoices to your advantage.
Get Paid On Time
This method gives businesses a clear estimation of the date by which they will receive payment. Hence, it can help small and new business owners especially to manage cash flow and have clearer financial forecasts.
Incentivize Early Payment
Typically, net D of 30 days is inclusive of the transit time for the customer to receive the product. It is a de facto short term credit option as you offer the client a chance to delay payment. This means that there are decent chances that the buyer might even pay early. It can also be presented as a perk. if you add a 2% discount for clients who pay within 10 days for net 30, it is called ‘2/10 Net 30’ - in this case, there is a higher probability that your client might pay early to save 2% of the invoice amount.
Matching Invoices To Clients
While some customers tend to pay late, others may often pay early. In order to have an effective accounting process, your invoices must be suited to your customers. Merchants can use different payment terms to match clients’ profiles such as evidenced in the following examples:
- Using net 10 or 15 for new and late-paying customers
- Using net 30 or 60 for big and early-paying customers
For example, for small bills such as $50, add the term ‘due on receipt’. On the other hand, if the total amount is sizable such as $3,000 or more, add net 30 terms or net 60 to ensure flexibility for the client.
Customization of your processes will help you manage your finances better and help you build better relationships with your customers. Knowing their patterns and preferences will help you decide the correct payment timeframe, while you will be able to lower your risk levels with new customers that you don’t know yet.
Conclusion
Small enterprises and freelancers need to know as many invoicing terms as they can to keep all the available options open. While it may sound complex at first, net 30 is one of the most popular and convenient terms. It appears on the top or bottom of the invoice, as part of the payment terms section.
Remember to specify the due date and use 2/10 net 30 or custom net D to ensure an effective invoicing process. Finally, using invoicing software for small businesses such as FreshBooks can help you save money, resources and time by sending invoices with net D configurations automatically embedded.
