When it comes to payment terms Net 30 Days is probably the most commonplace in the UK, especially among small businesses.
If you are unsure what it means, let’s break it down:
- Net refers to the full amount owed, allowing for any deductions and discounts.
- 30 Days simply means that the payment is due 30 days after the invoice date.
There are other common ‘Net D’ payment terms too, for example some B2B supply agreements may operate on Net 60 Days terms instead, allowing the business customer to take payment from their own consumer customers first, before passing this on back up the supply chain to their suppliers.
In general, faster payment is expected of consumers than of other businesses – so in consumer payment terms Net 30 Days is likely to be the longest allowed, with immediate cash on delivery expected in many industries including the household trades.
An exception to this in the consumer market is interest-free credit, which may be offered on larger items such as furniture as an incentive to buy, and this can delay payment substantially as a marketing tool.
In the context of B2B payment terms Net 30 Days is actually among the shortest deadlines placed on payments, as well as being the default for many standard supply agreements.
Remember though, bigger brands will often try to use their size as leverage to get longer payment terms, in some cases asking for Net 60, Net 90 or even Net 120 terms.
Again, these apply in the same way – ‘net’ means the full payable balance, less any deductions or discounts, and the number refers to the number of days allowed before the full balance must be paid off.
You must decide as a business owner whether to be flexible in terms of this deadline – especially in order to win a lucrative contract – or whether waiting longer for money to come into your bank account would put your cash flow under too much strain.
An option, especially on very long payment terms, is to ask for part-payment upfront as a compromise and a sign of good faith from the customer, or to require ‘milestone’ payments or instalments so that the full amount is paid gradually rather than in a lump sum 3-4 months from the invoice date.
Even on Net 30 payment terms, you could offer a discount for faster payments – for example, ‘2% 7 Net 30’ terms would give a 2% discount for payment within a week (7 days) or require the full amount without the 2% discount to be paid within 30 days.
Some businesses operate on a calendar month basis rather than strictly 30 days – and you should have a strategy in place to deal with bank holidays and major calendar events like Christmas and Easter, as payments can be delayed or simply missed in the disruption caused by these too.