Net 30 payment terms: what they are and why they matter (with examples and template)

While deciding what payment terms to offer your customers, you might have come across Net 30. 

But what does it mean, and is it the right option for your business?

In this article, we’ll discuss the pros and cons of Net 30 payment terms and how they work.

We’ll also look at some best practices for implementing them and how to determine whether they’re a good match for your business.

Here’s what we cover:

What are Net 30 payment terms?

Net 30 is a common payment term used on invoices. It gives your customers 30 calendar days to pay the full balance of their invoice, including weekends and bank holidays.

Net 30 offers your customers more flexibility than advanced payments and cash on delivery. It’s also less risky for your business than longer financing terms, such as Net 90.

It’s one of the most popular payment terms for business-to-business (B2B) companies, particularly those in wholesale, manufacturing, or service-based industries.

When you offer a Net 30 term on an invoice, you essentially extend the buyer 30 days of credit for the goods or services they’re purchasing from you.

This usually comes with an early payment discount and late fee stipulations.

It’s one of the most common credit terms, but it isn’t the only one.

You could offer longer credit terms, such as Net 60 or Net 90, or shorter credit terms, such as Net 7 or Net 15. 

Net 30 vs due in 30 days

Generally speaking, the terms “Net 30” and “due in 30 days” most often mean the same thing on an invoice—that you’re asking for the full payment within 30 days.

However, there can be slight nuances in how they’re applied.

Net 30 almost always means that payment must be made within 30 calendar days of the invoice date. 

The deadline for “due in 30 days” terms, on the other hand, can sometimes mean that payment is expected within 30 days of the buyer receiving your goods or services, or 30 days from when the initial sale was made.

The due in 30 days term is typically applied to business-to-customer (B2C) transactions, such as utility bills, and don’t tend to include an early payment discount.

These terms are often used interchangeably, so it’s always best to clarify the start date of the 30-day period on your invoice to avoid uncertainty.

How does a Net 30 payment terms agreement work?

Net 30 days payment terms are straightforward.

After your client has received their goods or services, you send them an invoice, including the agreed payment terms.

Your invoice should stipulate “Net 30” to specify that the buyer has 30 calendar days from the invoice date to settle the full balance. 

If your client fails to pay within the agreed 30 days, you could potentially apply late fees and/or interest to the total amount due.

Any such penalties or extra charges should be covered in the agreed payment terms.

When does Net 30 start?

Net 30 payment terms normally start from the date on your invoice.

Of course, you might decide on a different start date, depending on the nature of your business, your cash flow, and your customer’s preferences. 

Some businesses apply Net 30 from the date their product is shipped, the day it reaches their customer, or some other trigger.

Whatever you go for, it’s important that the payment terms are expressed clearly and in your contract.

You should make customers aware of your payment terms when they’re ready to buy (before the actual sale), and also include the terms on your invoice.

Making sure you and your customer have mutually agreed to the Net 30 start date will help you avoid confusion or disputes later down the line, and encourage timely payments.

What are the benefits of using a Net 30 payment terms contract?

There are several reasons why Net 30 payment terms are so popular in B2B contracts.

Here are three of the main advantages you can leverage as a seller:

Attracts new customers and drives more sales

Net 30 payment agreements can help you attract and secure customers who are dependent on a healthy cash flow balance.

By offering them a longer payment period, you’re giving them the flexibility to schedule payments in a way that aligns with their financial cycle and business needs. 

It also gives you a competitive edge over suppliers who demand advanced payments or shorter net payment terms, such as Net 7 or Net 15.

And the more flexible your payment terms are, the more likely customers are to place larger orders.

This drives more revenue and contributes to the growth of your bottom line. 

Meets various payment processing needs

Small businesses may not have the cash upfront to make immediate payments or meet tight deadlines.

Forcing them to pay immediately can put them under financial strain and ultimately motivate them to work with a more flexible company. 

Net 30 is also often a convenient payment agreement for larger companies.

They’re potentially less likely to be under the same financial pressures as many small businesses, but they typically have lengthy payment processes.

Invoices may need to go through multiple steps of validation and approvals, and payments are often scheduled as part of an established accounts payable process. 

If your payment terms don’t account for these needs, you may struggle to close deals with large companies. 

Builds customer trust and loyalty

When you put faith in your customers by offering them 30 days of credit, it fosters trust and loyalty. 

This gesture of goodwill demonstrates that you value your customers and are willing to be flexible to suit their needs.

This can go a long way in solidifying positive, long-term relationships.

What are the disadvantages of Net 30 payment terms?

Like all payment terms, there are some possible downsides to Net 30 for you to consider.

Increased strain on cash flow

Net 30 can be great for your customers, but it could cause cash flow issues for you.

You’ll essentially be financing your customers’ payments for up to 30 days.

As such, you could find yourself in a situation where more cash is going out of your business than coming in if you’re not careful. 

If you’re offering lots of Net 30 contracts to various customers at any one given time, it could put you under significant financial strain.

Especially if a large, unexpected expense were to crop up.

So, if you’re a smaller business with tighter margins and low contingency funds, Net 30 might not be the best payment option for you.

Risk of late payments

Giving your customers longer payment terms puts you at an increased risk of late payments. 

A customer might simply forget to make the payment, or come up against financial issues within the 30-day period, affecting their ability to pay on time. 

Delayed payments are obviously not good for business.

They can cause bad debt, sour professional relationships, and play havoc with your financial reserves.

It’s why some companies refuse credit terms, regardless of the benefits.

Net 30 payment terms example

Let’s walk through a Net 30 payment terms example to illustrate how it works in the real world.

Say you bill a customer £5,000 for delivering a content creation service.

You send them an invoice dated October 1, stipulating Net 30 payment terms. 

In this case, your customer must pay the full amount on or before 31 October by an agreed payment method.

If the customer settles the full amount before the 31st, you might offer them an early payment discount. If they pay on the 31st, you’ll settle the transaction and send a receipt. 

But if your customer doesn’t pay you until November, they might also have to cover a late payment fee.

For example, you might add a 1.5% monthly interest rate on the outstanding balance.

Any early payment discounts and late payment fees should be clearly outlined in your contract and on your invoice.

Net 30 payment terms template

Adding Net 30 terms is fairly straightforward, but it’s important to include all the relevant details clearly to avoid confusion over start dates and late payments.

If you were offering a Net 30 payment term, the terms section of your invoice might look like this:

Terms: Net 30. Payment due within 30 days from invoice date. Failure to pay by this due date will result in late fees of [add details of % or amount]. 

Of course, this is only one section of your invoice.

You’ll also need to include:

• The invoice date
• Breakdown of the items purchased and the cost of each
• The total amount payable
• Any taxes or other charges
• A detailed overview of any early payment discounts, as well as other payment terms. 

For an in-depth look at everything you need to cover, check out our handy guide on how to write an invoice.

What does the payment term 2/10 Net 30 mean?

As we’ve seen earlier in the article, Net 30 payment terms sometimes include a discount for customers who pay early.
One of the most popular discounts offered is 2/10 Net 30. 

This means that if your customer pays the full amount within 10 days of the invoice date, they’ll receive a 2% discount.

Your customer would still have 30 days from the invoice date to pay, but the discount would only apply within the first 10 days of that period.

Of course, the discount percentage and number of days can be changed to whatever you like.

For example, you might offer a 5% discount if your customer pays within five days of the invoice date, in which case you’d specify “5/5 Net 30” in your terms. 

How to make a 2/10 Net 30 calculation

Taking our earlier example of a £5,000 bill, start by calculating the discount amount using the following formula: 

(Total amount due) x (discount percent) = term discount percentage.
£5,000 x 0.02 = £100.

From there, apply the discount using the following formula:
(Total amount due) – (discount amount) = total reduced amount due.

£5,000 – £100 = £4,900.

So, in the above example, the total amount your customer is due you if they pay within 10 days of the invoice date is £4,900.

Pros of 2/10 Net 30

It might seem a bit like giving money away for no good reason, but there are benefits of offering an early payment discount:


• Speeds up collections: offering this type of discount could help you get paid faster, boosting your revenue stream and cash flow. As such, receiving 98% of a fee early may be more beneficial than getting 100% after 30 days for some businesses.

• Improves buyer-seller relationships: discounts are attractive incentives for buyers. Offering your customers an easy way to save money can increase retention and nurture positive, long-term business relationships.

• Reduces bad debts: encouraging early collections also helps you minimise the risk of late payments or non-payments.

Cons of 2/10 Net 30

Offering 2/10 Net 30 payment terms might not always generate the positive results you expect.

Here are some cons to be aware of:


• Revenue loss: ultimately, you’ll take a 2% hit on your revenue every time a customer pays within 10 days. This can add up and start to have an impact on your overall profits.

• Increased bookkeeping efforts: offering 2/10 Net 30 terms (or other discounts) can increase your accounting workload. To avoid the extra effort, you can automate the calculation, tracking, and recording of early payment discounts by using smart invoicing software.

How do you decide if Net 30 payment terms are right for your business?

Net 30 payment terms suit some types of businesses more than others.

Consider your cash flow, customers, and industry norms when deciding if offering Net 30 terms will help or hurt your business.

Here are three key questions to consider:

1. Can you financially support late payments?

Perhaps the most crucial thing to establish is whether you have enough reserves to wait 30 days or more for payments. 

Your accounting software should easily give you the key financial insights you need to determine if your cash flow can support more flexible payment terms.


2. Do you have a pool of reliable buyers?

How many customers do you have, and can you depend on them to make their payments within 30 days? 

Net 30 works best if you have a number of well-established, reliable clients.

If you depend on only a couple of clients or have lots of customers who regularly pay late, Net 30 might not be for you.


3. What’s the standard payment term in your industry?

If most of your competitors offer Net 30 terms you probably should too, to stay competitive.

You might even want to consider more flexible terms, to give your business an advantage over the competition.

What types of businesses use Net 30?

Offering Net 30 accounts is the norm in many industries, including:


• Manufacturing, wholesale, and distribution: often selling products to large companies with complex payment processes, manufacturers, wholesalers, and distributors maintain strong client relationships by offering Net 30 terms.

• Digital marketing, design, and development services: service businesses, such as advertising, content creation, web design, and web development, often use Net 30 to suit the cash flows of their customers.
• Financial and business services: companies in these industries understand the unique financial needs of their clients and typically offer Net 30 to attract and retain customers.

What are the alternatives to Net 30 payment terms?

Of all the payment terms, Net 30 days is one of the most popular.

However, if you’ve weighed up the pros and cons and you aren’t sure it’s right for you, there are plenty of alternatives to consider:


Net 7 and Net 15

Shorter payment terms, such as Net 7 and Net 15, can be a good idea if you want to offer customers some flexibility while reducing potential issues with cash flow for yourself. 

Net 45, Net 60, and Net 90

Extending your payment period to 45, 60, or even 90 days is also an option.

This might suit your business if you have a large customer base of trusted, high-value clients or enterprises with long sales cycles.

However, it comes at the risk of increased cash flow issues.

Advanced payments

You’re not obligated to offer a payment period. Some businesses ask for payment before the goods or services are delivered. 

This option is great for managing cash flow and lets small companies cover their costs with minimal risk.

That said, you may deter customers who want more flexibility.


Cash on delivery

You could ask for payment immediately after your customer has received their goods or the service.

Again, this benefits cash flow but limits flexibility for your customers.

Instalments

Instalments are another common payment term.

If you go for this option, you simply divide the total amount payable into smaller chunks, which are repaid at agreed intervals. 

This is mutually beneficial as buyers can spread out their spend, while you receive consistent payments, making it easier to manage your cash flow and plan ahead.

Net 30 payment terms best practices

If you’re considering offering Net 30 payment terms to customers, there are a few best practices you should be aware of:

1. Vet your clients

Perform credit checks on new clients and evaluate the payment history of existing clients to determine whether they’re suitable for Net 30 payment agreements. 

Aim to confirm their financial stability, reliability, and trustworthiness before you offer Net 30. And, if customers on Net 30 contracts abuse these terms, don’t be afraid to change them.

2. Continuously monitor your cash flow

Any change in your circumstances, such as inflation, economic downturns, or demand fluctuations, can impact your cash flow and, in turn, your ability to offer Net 30 terms. 

Monitor your cash flow on an ongoing basis to make sure your Net 30 payment term agreements work for both you and your customers. 

3. Manage Net 30 payment terms effectively with invoicing software

Say goodbye to complex, manual Net 30 admin with online invoicing software from Sage. Use the intuitive, dynamic solutions seamlessly streamline invoice generation and management so you can focus on running your business. 

4. Set default payment terms for new customers to improve consistency and effortlessly generate timely invoices

Using invoicing software, you can automate Net 30 due dates and early payment discount calculations, such as 2/10 Net 30.  You can also update your credit terms at any stage of the invoicing process, allowing you to adapt quickly to changing business needs. 

Optimise workflows, reduce manual errors, and encourage speedy payments while giving your customers a convenient online experience.

FAQs about Net 30 payment terms

Can Net 30 payment terms affect creditworthiness?

Yes.

When your buyers pay within 30 days, it demonstrates reliability and positively impacts their credit profile.

Receiving payments on time as a seller can also help you manage your finances and reduce the risk of bad credit.

Can Net 30 payment terms be negotiated?

Yes.

Both parties have to agree to the Net 30 terms, and they can be negotiated and changed before any contracts are signed. 

How does Net 30 compare to other payment terms, such as Net 60 and Net 90?

30, 60 and 90 simply refers to the number of days you give your customer to pay the total amount due.

Net 30 is the most common out of the three.

This is because it offers customers a reasonable amount of flexibility, while the shorter payment period means less risk of cash flow issues and late or missed payments for you, as the seller.