Net 60 is a standard payment term that indicates the timeframe within which a customer must pay their invoice, specifically 60 days from the invoice date.
Net 60 is a way for businesses to give their customers more time to pay for goods and services compared to others, who only offer 30-day credit terms.
However, offering Net 60 as a payment option does not come without its challenges and complexities. At Direct Route, we delve into invoice terms below and look at some of the benefits as well as the challenges offering customers Net 60 can bring.
What is Net 60?
Payment terms are crucial for helping businesses manage their cash flow and maintain the overall financial health of the company.
Net 60 definition – a credit arrangement that is mainly used in B2B transactions where customers must settle their bill in full 60 days from the invoice date.
When a payment term is Net 60, the `days` include weekends and holidays, as well as all usual business days.
Net 60 is one of the longer payment terms businesses offer and is often provided to give certain companies in specific sectors (wholesalers and distributors) more time to get large sums of money to pay for the goods and services.
However, Net 60 isn’t for everyone, and there are other alternatives, such as Net 15, Net 30, and Net 90 (used in exceptional circumstances).
When we look at `what is a Net 60 payment term,` there are also other payment terms to be aware of, including:
- PIA – payment in advance.
- EOM – end of the month.
- Due upon receipt
How does Net 60 work?
Typically, payment terms are negotiated and outlined succinctly in a contract, which is agreed upon by both parties in advance of working together.
If Net 60 is agreed upon, customers can purchase goods and services on credit. An invoice will then be issued, and customers will have 60 days from the invoice date to pay in full.
All communication regarding payment terms should be clear, concise, and fully documented to avoid any misunderstandings or misinterpretations.
Ideally, think about what is right and most suitable for your business. Consider current industry standards, client relationships, cash flow projections, and more. It is about finding payment terms that work for all parties.
Net 60 payment terms
If you offer credit to a customer, it is important to perform the necessary credit checks to better understand how likely they are to pay you for the goods and services you sell. You need to assess the financial health of your customers to ensure they can meet the agreed-upon terms.
In some instances, companies may require a guarantee from a new customer to extend credit. For new customers or when providing a guarantee, Net 30 is the most commonly used payment term.
As the company offering the credit terms, you will also need to ensure that your business is in the best position to manage and justify Net 60 payment terms. Can your cash flow cope with extended terms?
Payment terms
Payments terms to be aware of include:
- Standard Net 60 – payment is due within 60 days of the invoice date.
- 1/10 Net 60 – Customers receive a discount of 1% if the invoice is paid early. If not, the invoice must be paid in full within 60.
- 2/10 Net 60 – same as above but with a 2% incentive for early payment.
- Net 60 end-of-month (EOM) – payment is due 60 days after the EOM in which the invoice was issued.
- Net 60 receipt of goods – the 60 days begin when the customer has received their goods.
Benefits of Net 60
- Offering extended terms can help you attract new and more customers, thereby boosting sales.
- Provides customers with a bigger grace period, helping to ease their financial strain.
- Shows trust and goodwill, enhancing customer satisfaction.
- Gain a competitive edge.
- You can use it to incentivise your customers to pay on time or even early.
- It can help to build strong relationships with your customers.
- It offers a great deal of flexibility.
- Net 60 is a great benefit for customers who experience seasonal fluctuations or those who are waiting for payment from their customers before settling their bills.
Challenges of Net 60 invoice term
- It can impact cash flow (short term) if you are waiting for money to carry out your everyday business operations. Ultimately, can you afford to wait two months for payment?
- It can be more administrative heavy.
- Bigger non-payment risk.
In these instances, other payment terms may be more suitable for your business’s cash flow, and you should choose one that is right for your business operations.
Note: If you do want to offer Net 60 and avoid it negatively affecting your cash flow, businesses can look to use invoice factoring, i.e., you can receive cash payments before account receivable is collected.
Late payment of invoice
If you do offer long lines of credit, you do run the risk of invoice not paid situations. To counteract this, it’s essential to incorporate late payment fees, interest charges on all outstanding amounts, and provisions for overdue invoices to be passed to collection teams for collection on your behalf.
It’s important to ensure that all payment terms are clearly shown on your invoice and that all details and information are included.
If you are experiencing a company not paying their invoice, we can help.
Our team specialises in the late payment of invoices, helping to successfully collect on outstanding amounts to avoid your cash flow from being negatively affected.
To find out more and to see how we can help you with late payments, call +447860197476 or email your query to memberbenefits@directroute.co.uk – we’d be happy to help.