Net 30 is a financial credit term that businesses use and include in the payment terms of an invoice.
It is a term that indicates when a business wants to be paid for the services or goods they have provided.
At Direct Route, as part of our credit control processes and services to our clients, we ensure that all businesses include a Net 30, 60, or 90 on their invoices to ensure prompt payment and to help reduce the number of invoices not paid.
What is Net 30?
Net 30 is a credit control term that ultimately means payment of goods or services provided is due within 30 days after the issued invoice date.
This small piece of information is essential to include on invoices as it helps to clarify when you want to be paid.
To ensure timely payments, implementing the Net 30 term on invoices helps to increase your chances of being paid on time and avoid late invoice payments.
Instead of Net 30, another recognised invoice term includes “payment due in 30 days”.
The 30 days include weekends and holidays, and this time period provides customers with 30 days to match invoices to purchase orders, review invoices, check information and details, and then populate in their system to generate the payment.
How does Net 30 work?
Net 30 works when a business offers credit for the purchase of a product, the product is delivered, and then a request for payment in the form of an invoice is issued, with a payment due date set.
In most instances, new customers/new businesses may have to pay invoices immediately as they haven’t built a relationship with the business.
However, businesses with a long-standing relationship and who have been fully credit checked may receive a credit account with a net 30 payment period attached.
This is a business’s way of extending credit to their customers, trusting that you can have the goods now and will pay the invoice in full within the specified 30 days.
This form of credit is used to build a positive working relationship between businesses, and in some instances, the net 30 timeframe can be extended depending on credit agreements and business-to-business relationships; this extension can range from 30 to 60 and even 90 days.
However, businesses can also shorten this period and request payment sooner. For example, Net 10 and Net 15 are not uncommon.
It’s also important to note that you don’t have to use the same payment terms with every client. For example, customers may start on a net 15 term, but with good customer loyalty and payments, credit terms may be extended to net 30 and beyond.
Credit terms are usually located at the top of an invoice or included in the terms and conditions section at the bottom.
Payment terms on invoices
To ensure prompt payment and working with key credit terms:
- Payment terms should always appear on invoices and be clear, concise, and consistent. Make sure your invoice has all the required information.
- Always check a customer’s credit history before offering extended credit terms.
- Agree on payment terms upfront. For example, when does the 30 days start? When you issue the invoice? When the customer receives the product, etc? The most typical is when the invoice is received.
- For late-paying clients, look to offer smaller payment due windows, for example, net 10 or net 15.
- Ensure you have robust credit procedures to collect and chase outstanding invoices, follow up on late payments, and enforce payment terms.
- Discount or incentivise customers to pay earlier than the requested date. For example, if a customer pays within 14 days, they receive a 5% further discount.
Benefits of Net 30
With a greater understanding of Net 30, businesses can start to maximise the benefits of such a term.
Benefits such as:
- Customers often appreciate the longer payment terms, making it flexible and interest-free.
- Creates a routine for customers to settle their bills monthly.
- You can gain more customers by offering flexible payment terms and billing.
- Sometimes, it can be easier to work with larger companies that have multiple levels of payment processes and strict payment dates.
- Builds goodwill and trust, encouraging customer loyalty and building long-lasting relationships.
- Offers customers a 30-day breathing space, interest-free. Helping with buyer liquidity.
- You can create your own payment terms (within reason), but you must make sure to clarify these on your invoice.
- Reduces bad debt.
- If you include a payment due date and a customer pays after this date, you may be able to charge them a late payment fee or penalty charge.
However, before you jump straight into a Net 30 payment term it’s important to consider:
Do you have enough capital and cash flow in the business to offer these payment terms, i.e., does your company have enough money to pay suppliers?
The longer payment terms offered mean you can create slow cash flow problems.
Sometimes, invoices aren’t paid at all, and you may need the support of a third-party collection agency.
An agency like Direct Route.
Supporting you with late payment of invoices and debt collection services all tailored to your needs.
We know that late payment of invoices puts a significant strain on businesses. And we understand that it is crucial to a business’s cash flow to be paid on time, every time.
Helping to ensure financial stability and improve credit processes and procedures. To find out how we can work with you, contact us at +44 78601 97476 or email us your requirements at memberbenefits@directroute.co.uk.