Invoicing can be hard, which is why we so often write about how you can make sure your invoicing is top notch.
However, there are often some invoicing or finance terms which many small business owners and freelancers may be unfamiliar with.
One of these is Net 30. What exactly is it and how can I use it—or should I even use it at all?
Today we’ll look at those questions in our in-depth analysis of Net 30.
What is Net 30?
Net 30 is an accounting terminology that states that invoices must be paid within 30 days.
The 30 is interchangeable with other periods, so it can be Net 7, 10, 21, 45, 60, and even 90. Technically, your Net period can be as long or as short as you want, as long as your clients agree to it.
In Net 30, the transit time is included in the 30-day time period. Therefore, if your product takes 7 days to get to your customer, the customer only has 23 days left to pay the invoice.
Although the amount of time is clear from the number, it is often unclear exactly when that time begins.
Do the 30 days start from the date the invoice is issued? Or is it the date the services were rendered or products delivered?
The Advantages of Net 30
There are quite a few advantages of Net 30. One of those is that if you are extending short-term credit to the client (which is technically what Net 30 is), then you are giving your client a greater incentive to buy from you.
People are generally more willing to pay for something if the payment is delayed–just like with credit cards.
Therefore, both you and the customer gets to benefit. You can have increased sales. Your client will have more time to pay and therefore more incentive.
The Disadvantages of Net 30
For the most part, Net 30 payment terms are great for medium-sized and larger businesses. This is because they tend to have lots of clients and can wait for the unsurprising late payment from clients.
However, if you have a smaller business or you’re a freelancer, these terms can be very difficult. That is because many clients may feel they have more leeway to pay you late or not at all.
There are many stories of clients only enacting the 30 days in Net 30 after their clients pay them. This could be weeks, months, or even years after you’ve submitted the invoice.
And because small (and micro) businesses and freelancers have much fewer clients, and therefore fewer options, they are less likely to be strict in getting payment.
It is recommended that in those situations, you should:
- minimize payment terms, to something closer to 15 days
- include late payment fees, so that your clients have an incentive to pay on time
- don’t give new clients Net 30, and state that you only give it once you’ve built up trust
When you use these tips, you’ll be able to see the value of Net 30 payment terms. Or, optimally, Net 15. That way, you can provide enough incentive to your clients without giving too much leeway.
Good luck!
