Net Payment Terms

Net payment terms are used to define the amount of time a client has to pay an invoice once it’s issued. Common terms include Net 30, Net 60, etc., where the number refers to the days within which payment must be made. These terms are usually mentioned in contracts and invoices.

What are net payment terms?

Net payment terms refer to the period of time within which a buyer must pay the full amount owed to a seller for goods or services purchased. The term "net" means that payment is due in full, without any deductions or discounts, within a specified number of days after the invoice date.

For example, if the net payment terms are 30 days, the buyer must pay the full amount owed within 30 days of the invoice date. If payment is not made within the specified time frame, the seller may charge interest or take other actions to collect the debt.

What are some common net payment terms?

Common net payment terms include:

  • Net 30: Payment is due within 30 days of the invoice date.
  • Net 60: Payment is due within 60 days of the invoice date.
  • Net 90: Payment is due within 90 days of the invoice date.

However, net payment terms can vary depending on the industry, the type of goods or services being purchased, and the relationship between the buyer and seller.

How do net payment terms affect cash flow?

Net payment terms can have a significant impact on a company's cash flow. If a company has a large number of outstanding invoices with long net payment terms, it may struggle to maintain sufficient cash flow to cover its own expenses and investments.

On the other hand, offering longer net payment terms to customers can be a way to attract and retain business, especially in competitive industries. However, it is important for companies to carefully manage their cash flow and ensure that they have sufficient reserves to cover any potential shortfalls.

What are some strategies for managing net payment terms?

Some strategies for managing net payment terms include:

  • Offering discounts for early payment
  • Establishing clear payment policies and procedures
  • Communicating regularly with customers about payment status
  • Using automated invoicing and payment systems to streamline the process
  • Working with a collections agency or attorney to collect overdue payments

By implementing these strategies, companies can help ensure that they receive timely payments and maintain healthy cash flow.

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