An Overview of Net 30 Invoice Payment Terms & Other Terms of Payment
Do you need help understanding different types of payment terms, such as net 30 terms and net 60? Exactly what does net 30 mean? What does 60 days payment terms mean? And do these net payment terms benefit or hold back your business?
Although understanding “what does net 30 mean” is important from an account receivables perspective, most business owners would say they have no idea of the pitfalls of net 30 terms or net 30 pay. So, here’s the complete overview of different net payment terms, starting with what is net 30?
First, what does net 30 mean?
What is net 30 and what does net 30 mean? Net 30 terms refer to the amount of time (in days) a customer has to pay an invoice. Net 30 terms can also be referred to as payment terms net 30, terms net 30, net 30 pay, net 30 payment or invoice net 30. With net 30 terms, the customer has 30 days to pay the net amount (total minus any discounts), before a company may start adding finance charges or late fees.
There are also extended terms, such as 60 days payment terms. With net 60 payment terms, the customer has 60 days to pay the net 60 amount (total minus any discounts), before accruing a finance charge. Net 60 terms can also be referred to as 60 days payment terms or net 60 payment terms.
Now that you understand “what is net 30” and other terms of payment, let’s explore the pitfalls that different invoice payment terms can pose for small businesses.
For many businesses, invoice payment terms, whether it be for net 60 terms or even net 30 terms, isn’t the problem.
The problem is when a net 60 or net 30 invoice will actually get paid.
Specifically, the lag between the time you have to pay your suppliers and employees and the time you collect from your customers can present a problem.
Inconsistent cash flow, as a result of late payments on a net 30 account for example, is a frustrating experience for any business owner. The consequences to a business can be damaging and widespread, encompassing everything from employee paycheck delays to crippled business growth due to an inability to take on new projects.
So, how can business owners avoid putting themselves at the mercy of long payment terms and when clients submit their net 30 payment?
Improving Receivables on Net 30 Invoicing
In a perfect world, you would receive your payment immediately and never have a cash flow problem. Unfortunately, that doesn’t always happen with a net 30 payment term. The good news is there are still ways to improve your cash flow by managing your net 30 account receivables.
The fundamental idea is to improve the speed with which you turn net 30 account receivables into cash. If you extend your customers net 30 terms, here are some specific techniques for doing this:
- Ask customers to make a deposit at the time orders are taken.
- Offer discounts to customers who pay their net 30 account bills on time.
- Require credit checks on all new invoice net 30 customers or those with 60 days payment terms.
- Issue invoices for net 30 payment terms promptly and follow up immediately if you don’t receive on-time payment.
- Track accounts receivable to identify and avoid customers who don’t comply with net 30 terms.
The solution comes down to cash flow management. At its core, cash flow management means encouraging customers who owe you money to pay it as quickly as possible, while delaying expenses as long as possible.
If you’re looking for a solution that gives you more flexibility around net 30 terms and other invoice payment terms, you may want to consider factoring.
Accounts receivable factoring is a financing method in which a business owner sells net 60 or net 30 invoicing to a third-party funding source to raise capital. These are financial businesses that can pay you immediately for net 30 days receivables you may not otherwise be able to collect on for weeks or months. You’ll eliminate the hassle of collecting on net 30 terms or any net payment terms and be able to fund current operations without borrowing.
One of the oldest forms of business financing, net 30 terms factoring is the cash-management solution of choice for many companies for net 30 invoice and other terms of payment. Factoring is very common in most business-to-business industries, such as transportation, staffing, manufacturing and the wholesale industry, where long and varying types of payment terms, such as a net 30 payment term or 60 days payment terms, are a regular part of the business cycle.
In a typical net 30 terms factoring arrangement, the client (you) makes a sale, delivers the product or service and generates a net 30 days invoice. The factoring company (the funding source) buys the right to collect on that net 30 invoice by agreeing to pay you the face value of the invoice less a small percentage discount.
The client needs to forward acceptable documentation [such as the original net 60 or net 30 days invoice and related documents] to the factoring company. The factoring company then advances cash to the business in a relatively short time (usually within 24 hours), much shorter than the net 30 payment terms. The factor pays 75 percent to 95 percent of the face value and forwards the remainder (less the discount) when your customer pays on their net 30 account.
The bottom line: success favors the prepared. Smart business owners, who offer net 30 payment terms, seek working capital financing before they need it. Even if you don’t need it now, working capital supplies your business with a strong reserve and makes it ready for anything, especially when clients don’t comply with your net 30 payment term.
As mentioned earlier, factoring offers financing tied to net 30 account invoices. The result is a credit line, like a business line of credit. The only difference is because factoring is tied to specific invoices, you usually get better rates.
If your company regularly generates commercial invoices with net 30 terms, you may be a good candidate for factoring, which will provide the cash you need to fund growth, take advantage of early-payment discounts suppliers offer and reduce the payment time of net 30 account receivables.
By securing a ready source of working capital ahead of your need, you can grow your business while avoiding the debilitating cash-flow crunch that cripples many businesses, due to a late net 30 account or net 30 payment term. Be proactive, consider the ROI, and research your options for getting net 30 terms invoices paid faster, so you can avoid the stress and grief that so many other business owners have to endure due to a late net 30 terms invoice or a delinquent net 30 account.
What does net 30 mean to your cash flow?
What does net 30 mean to your business? Experienced, intelligent business owners know that any amount of poor cash flow can spell disaster for a small business. The best time to think about cash flow, then, is right now — before you have a need.
Still need a better understanding of “what does net 30 mean” to your cash flow? For someone who understands your industry and can fully answer “what does net 30 mean” for your business, you can rely on Interstate Capital. Ask us about payment terms net 30, including how to avoid the pitfalls of net 30 payment terms and net 30 invoicing.
Contact us today to get instant funding on your net 30 invoices – it all starts with a complimentary factoring rate quote.