Net 30 Payment Terms: The Pros and Cons

What Does Net 30 Mean?

Net payment terms are a type of trade credit that gives a customer a set window of time to pay for a service or product. When a supplier and a customer agree to net 30 terms, the customer must pay for the goods they received within 30 calendar days of the invoice date, delivery of the goods, or some other set criteria.

Thirty days is the most common time frame suppliers adhere to, but other net terms are also used. Some industries may use net 60 or net 90 payment terms, meaning the buyer has 60 or 90 days to make a payment, respectively. Other terms may only allow for 15 days or less.

Variations of Net 30 Payment Terms

Sometimes businesses will offer more specific payment terms than just a deadline. For example, 3/10 net 30 payment terms mean the buyer will receive a 3% discount if they pay within a 10-day period. These types of discounts can have many variations, but the calculations are the same:

• 1/15 Net 30: The buyer receives a 1% discount if they pay within 15 days.
• 2/10 Net 30: The buyer receives a 2% discount if they pay within 10 days.
• 3/10 Net 30: The buyer receives a 3% discount if they pay within 10 days.

To calculate the value of the discount, simply multiply the full amount of the purchase by the noted discount percentage. So, a 3/10 net 30 payment term on a $10,000 purchase would equal a $300 discount.

3% x $10,000 = $300

In this example, the buyer would only pay $9,700 for the goods with an early payment.

Pros of Using Net 30 Payment Terms

Net 30 payment terms are one of the most popular ways suppliers charge clients due to the number of benefits they offer.

It Can Give Your Business a Competitive Edge

For businesses that have a product that is hard to distinguish from competitors’ products, offering flexible payment terms can help them stand out from the crowd. A buyer will likely choose to do business with the supplier that is less rigid with their demands and rewards customers who pay early.

It Makes Your Offerings More Accessible

Many buyers appreciate 30-day terms because it gives them the opportunity to pay for the goods with the revenue they’ve made from their own sales. If a buyer has narrow cash flow margins, they might not be able to pay for the goods upfront. Or, the buyer uses the product in such small increments that they need the extra time to make their money back for the purchase.

In those situations, the buyer wouldn’t be able to do business with a supplier that requires payment upfront, driving the need for net terms.

It Instills Customer Loyalty

Another benefit to using net 30 terms is that it shows suppliers place trust in their customers. A working relationship that operates with a healthy degree of good faith will likely last for a longer amount of time than one that is strictly transactional and only focused on the bottom line.