Net 30 terms: Essentials and Benefits
18 Nov 2020
If you run a business, it is quite advisable to keep a harmonious relationship with your customers. The way and terms you offer credits to your customers directly impacts your business efficiency and financial state.
The essence of Net 30 terms
Net 30 is top-used and one of the most beneficial credit terms in accounting.
That’s why learning net 30 is vital for your company’s existence.
As the term itself says, Net 30 inclines the net or full amount of the invoice is owed within 30 days of the invoice date.
Let’s take an example for a clearer view.
The invoice has Net 30 terms, and the invoice date is November 11. It means the customer has to pay within 30 days-by December 10.
However, there are cases suppliers offer additional discounts of 2.5/10, Net 30. It aims to make customers pay earlier (within 10 days) and instead of paying the full amount to pay only 97.5%.
By the same logic, companies can offer 1/10 Net 30, 2/10 Net 30, 5/10 Net 30 enabling customers to make early payments and get certain discounts.
Sometimes instead of the term “Net 30“, “due in 30 days” is used. Both of them refer to the term for paying the invoice within 30 days. The only case when there is a difference between these terms is discount offers, as mentioned above.
The Advantages of using Net 30
Get more customers
Offering Net 30 is a good way to get more customers and be competitive in the market. However, not all companies and business owners are ready to offer credit terms, so offering flexible payment terms will have a positive effect on customers’ decision process.
Besides the financial benefits of credit terms, it also affects the relationship quality between both sides, ensuring mutual trust and loyalty. Making people become your brand’s users and encouraging them to make a purchase allows you to get satisfied and happy customers.
Offer special discounts
Taking benefits of discounts will really bring you many potential customers from your business. Remember your reaction when you get a special pricing offer, be it a common discount, a special price or a free trial (in case of services). Try to offer special discounts to boost your sales.
The Disadvantages of using Net 30
Although Net 30 is too beneficial, however, it may cause some problems for small-sized businesses.
Cash flow problems
The fear of having cash flow issues is typical for any business owner. Consequently, if you run an SMB and have a limited cash flow, getting paid too late will cause many problems. It is crucial to learn your financial state before taking the risk of offering credits.
Narrow profit margin
Another predictable problem of offering discounts to Net 30 is narrowing your profit margin. As all business owners aim at keeping their business profitable, there is no sense to put you in risk and reduce profit margin.
Sometimes an awareness of the term may confuse.
- Are the 30 days counted when the invoice is received?
- Due 30 days start from the date of the invoice.
- Are the 30 days counted from the day order is delivered?
- Why is Net 30 offered without a discount?
- Are the 30 days counted from the day the supplier is first paid?
In the case of the Net 30 terms, the due 30 days start from the date of the invoice.
The following tips are valuable to overcome this challenge:
- Reduce the payment time
- Charge late payment fees
- Offer Net 30 only for reliable customers.
Finally, offer Net 30 and discounts or not?
As you have seen, there are many benefits in offering Net 30, and most business owners find it quite beneficial. If you have accurately carried out your credit terms based on a proper analysis of your business goals, it will be a great choice for boosting your business and customer base.
However, if you are not in a financial state to wait 30 days, you can try to offer Net 10 or 15.
Always remember offering credit includes the possibility of late or even failed payment.