What Does Net 30 Payment Terms Mean?

When you have little to no experience with sending invoices and you’re new to the lingo, it can be confusing to know what’s best to use for your business. All you want to do is get paid, but it’s not always as simple as just putting an amount due on a piece of paper and sending it to the client.

There are a LOT of payment terms on invoices and while, yes, you don’t have to be a financial genius, you DO have to put the effort in to learn about it.

The very basics of invoices will throw out terms like net 90, net 60 and net 30 payment terms. Understanding these payment terms is vital for you to be able to get paid on time.

In this guide, we’re going to do a deep dive into net 30 payment terms, what it means and when it makes sense to use it for invoicing clients.

What is Net 30?

Net 30 refers to a payment term where the payment for the goods or services is due in full 30 days after the transaction has completed.

A lot of businesses choose to offer a discount to customers if they manage to pay before the 30 days is complete. Net 30 refers to the amount owed in full, less any discounts and deductions.

Is Net 30 the Same as Due in 30 Days?

In essence, no, because net 30 is a credit term where customers can have a discount on the goods if they pay earlier in this time.

Due in 30 days means that 30 days after the invoice is sent, the full payment is due.

The Pros of Net 30 Payment Terms

There are a lot of advantages to offering net 30 payment terms on your invoices:

By extending a trade credit to your clients, you are giving them more of an incentive to buy from you. It means that you’re giving them a little breathing space before paying, which people appreciate.
People will usually be more willing to pay for something if they have a little time to do it. It’s why credit cards are so popular!
With net 30 payment terms on an invoice, both you and the customer benefit.
You’re incentivizing clients to pay earlier by offering a discount if they pay early, which means you get paid quicker!
By offering these terms, you’re showing your customers that you trust them and sometimes, this can put you ahead of others in the same game.

The Cons of Net 30 Payment Terms

As with anything, there are also going to be disadvantages to offering net 30 payment terms and it’s important for you to have a balanced understanding of what you’re offering your customers.

Most of the time, net 30 is great for large and medium businesses. This comes from having a lot of clients and the larger companies can afford to wait for the inevitably late payments.
Larger companies often ask for net 30 terms because of the layers of internal approval that they require before they can make payments. This can help them to manage their balances far better and it’s good for cash flow.
For small businesses, this could be a kiss of death if you can’t afford to wait for the payments from customers. If it’s going to put your business into hot water to offer net 30, don’t offer it.
Smaller businesses have fewer clients and are usually less likely to be strict on payment terms, which some clients might take advantage of.
If you’re ever in the situation where people are paying later and later, you need to offer something different, such as net 15 payment terms.
You could include hefty interest and penalties to encourage on-time payments, though this also could chase clients away.
It’s typically not recommended to use net 30 payment terms for new clients since you don’t know when/if they’ll be able to pay you. In those cases, it’s better to choose payment terms like “due on receipt” until you establish a relationship with them.

How Can I Encourage Payment?

In an ideal world, sending an invoice should be enough for a customer to pay their bill. When you’re adding incentives such as early settlement with a discount included for encouragement, this should also be enough.

However, it doesn’t always work out like that. Clients might overlook your invoice, forget to pay, or in some cases not have the money to pay you on time. Luckily, you don’t have to sit back twiddling your thumbs waiting to get paid.

Here are some tips to make sure you get paid on time:

Be careful about your wording and don’t mix up the terms. Net 30 payment terms need to come with a discount offer. Telling customers that their bill is due in 30 days is different, so mind your wording and identify the timeline that you expect the bill to be settled in.
There should be an incentive ready for those who want to pay earlier than the net 30 payment terms dictate. You could offer discounts for those paying at day 10, 15 and 20, which will hopefully encourage the more business-savvy customers out there.
Clients have to understand your terms, too, which is why you should detail the penalties for non-payment and how much a late fee will be. This has to be explained clearly to your customers before any transaction takes place—transparency is key to success.
Add some courtesy to your invoices with a ‘please’ and a ‘thank you’. Believe it or not, these can go a long way in encouraging payment as people value manners.

Do I Need Net 30 to Remain Competitive?

While some companies and freelancers out there have a negative view on net 30 payment terms, it can give you some leverage if you’re looking to work with larger clients.

Like we mentioned earlier, it’s pretty commonplace for large established businesses to request net 30 payment terms because it aligns with their cash flow and accounting cycles.

Plus, you have to keep in mind that you’re probably one of many vendors they’re working with. If they’re being invoiced by 30 different freelancers and clients all at the same time, it could potentially mess with their budget and other expenses.

While it’s definitely a nice option to offer, it’s not a necessity. Especially if you can’t afford to wait a full 30 days, or worse, risk not getting paid on time.

On the flip side, if you’re offering a service based business without a lot of overhead, offering net 30 payment terms can be a unique selling point. Since a lot of small businesses and freelancers don’t provide this option, it’s a good way to stand out.

Should I Give All My Clients Net 30 Payment Terms?

As mentioned earlier, it’s always a better idea to give net 30 to clients that you’ve established a relationship with.

Ultimately, offering clients net 30 payment terms can help you build a good long-term relationship. It’s extending more than credit - but trust.

If they can feel motivated to pay early based on your terms and penalties as dictated on the invoice, you can build a solid business relationship. Net 30 payment terms can be a risk, but it’s all about the balance.