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What Is Net 30 And What Are Net 30 Payment Terms?

by | Mar 22, 2023 | 0 comments

If you work in finance or a part of a business’ accounting team, you’ve likely come across the term “Net 30”. Net 30 is a popular payment term used in business transactions, requiring buyers to pay the net amount in full within 30 days of the invoice date.

In this article, we’ll delve deeper into the net 30 payment term, examining its benefits and drawbacks and offering tips on ensuring prompt payments when providing net 30 payment terms to your customers.


What Does Net 30 Mean?

Net 30 refers to a specific net days payment term in business transactions.

“Net days” is a term used in business transactions to indicate the days the buyer should pay the full amount owed. It is a trade credit agreement between the buyer and the seller. In this case, the payment for a particular product or service is due within 30 days from the invoice date.

Net 30 is a standard payment term for most businesses, but other terms can also be applied – such as Net 15 or Net 60. The length of the payment period will depend on the business and the nature of the transaction.

What does net 30 mean on an invoice?

Net 30 on an invoice means that the buyer has 30 days from the invoice date to pay the net amount in full. In other words, it’s a payment term that specifies when the payment for the goods or services rendered is due.

For example, if a business sells $10,000 worth of products and issues an invoice with Net 30 payment terms, the buyer has 30 days to pay the $10,000 in full from the date of the invoice. If the buyer fails to pay within the specified period, the seller may charge interest and fees or take other measures to collect the outstanding balance.

what is net 30 infographic with meaning of net 30

Why Use Net 30 terms?

Businesses use Net 30 terms to provide flexibility to clients while ensuring steady cash flow. These terms attract more customers who can’t pay upfront, leading to increased sales and customer relationships. Payment terms also provide a predictable payment timeline, helping businesses manage cash flow.

However, late payments are still a challenge many businesses face despite offering payment terms.

When exactly does Net 30 start?

Net 30 payment term starts on the invoice date and ends 30 calendar days after that date which includes weekends and holidays, but it ultimately depends on the specific terms agreed upon by the buyer and seller.

It’s important to clarify with the seller whether weekends and holidays are included in the payment term calculation.

What are the benefits of using net 30 terms?

  1. Attracting customers: Offering payment terms can attract customers who may not have the funds to make a full payment upfront, allowing them to purchase goods or services they need to grow their business.
  2. Building relationships: Payment terms can help build long-term customer relationships, leading to repeat business and positive word-of-mouth advertising.
  3. Increasing sales: By offering payment terms, your business can increase its sales volume as more customers can purchase your goods or services.
  4. Improved cash flow management: Payment terms allow you to manage your business’ cash flow better, as you can predict when payments will be received and plan accordingly.
  5. Competitive advantage: Offering payment terms can provide a competitive advantage over other businesses that do not offer payment terms, making your business more attractive to potential customers.
  6. Reduced risk: Payment terms can help reduce the risk of non-payment, as your team can set payment deadlines and proactive steps to collect payments on time.

What are the drawbacks of using net 30?

While offering payment terms such as “Net 30” is common in many industries, business owners need to be aware of some risks associated with using net 30.

  1. Increased late payment and bad debt risk: Offering payment terms can increase the risk of non-payment, as businesses may have less control over when they receive payment and may be at risk if a customer is unable or unwilling to pay. Using business credit scores to monitor customers can be an effective way to reduce your risk. Leveraging direct debit authority can also help curb late payments by being able to collect payments from your clients when invoices become due.
  2. Administrative burden: Managing payment terms can be an administrative burden, requiring additional resources to track payment due dates, follow up with customers, and manage collections. Automating your accounts receivable process can help reduce time and cost it takes to manage collections of payments.
  3. Cash flow challenges: Depending on the payment terms offered, businesses may experience cash flow challenges, as they may only receive payment well after goods or services have been delivered.
  4. Reduced profitability: Offering payment terms can reduce profitability, as businesses may need to offer discounts or absorb interest charges to encourage timely payment.
  5. Customer relationship strain: Late payment or non-payment can strain customer relationships and lead to disputes or legal action, even if payment terms are spelled out in advance.

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While payment terms can be a valuable tool for businesses engaged in B2B transactions, it is important to carefully consider the potential drawbacks and develop strategies to manage risks associated with offering payment terms. By establishing clear payment terms, performing credit checks, and having a plan in place for late payments, you can protect your business and ensure its long-term success.

What is 2/10 Net 30?

“2/10 net 30” is a payment term that means the customer can take a 2% discount on the invoice amount if they pay within ten days of the invoice date. Otherwise, the full amount is due in 30 days.

How do you calculate 2/10 net 30?

To calculate the discount amount, you can follow these steps:

  1. Determine the invoice amount.
  2. Calculate the discount amount by multiplying the invoice amount by 2% (0.02).
  3. Subtract the discount amount from the invoice amount. The difference is the discounted invoice amount.

If the customer pays within ten days, they should pay the discounted invoice amount. If they do not pay within ten days, the full invoice amount is due in 30 days.

infographic with meaning and computation of 2/10 Net 30

2/10 Net 30 example

Here’s an example to illustrate the “2/10 net 30” payment term:
Let’s say a customer buys $1,000 worth of products from a supplier, and the supplier offers the 2/10 net 30 payment term. If the customer pays within ten days of receiving the invoice, they can deduct 2% ($20) from the total amount and only pay $980. However, if they don’t pay within ten days, the full amount of $1,000 is due in 30 days.

Pros of offering discounts like 2/10 Net 30

  1. Improved cash flow: By offering discounts on early payments, businesses can encourage customers to pay sooner, improving their cash flow and providing a more predictable revenue stream.
  2. Reduced bad debt: Early payment discounts can reduce the risk of non-payment or late payment, which can help businesses avoid bad debt and the associated costs of collection efforts.
  3. Better customer relationships: Offering discounts on early payments can help build better customer relationships. It shows that the business values prompt payment and is willing to reward customers who pay on time.
  4. Competitive advantage: Offering early payment discounts can provide a competitive advantage over other businesses that do not offer such discounts, making a business more attractive to potential customers.
  5. Reduced administrative burden: Early payment discounts can reduce the administrative burden of managing payment terms, as it can help ensure that payments are received more quickly and with less follow-up required.

Cons of offering discounts like 2/10 Net 30

  1. Decreased revenue: Offering discounts on payments means you’re earning less revenue than you would if you didn’t offer discounts. Analyze your company’s cash flow to ensure that offering a discount will not negatively impact your business’s ability to meet its own financial obligations.
  2. Lower profit margins: By offering discounts, you’re also reducing your profit margins. If your margins are already tight, offering discounts can make it even harder to turn a profit. Understand your business’s profit margins to determine if offering a discount will result in a sustainable profit.
  3. Administrative overheads: Managing the discount process can add additional administrative work, such as tracking which customers have paid earlier than the term and calculating discounts.
  4. Complex accounting: Implementing a discount program requires accounting adjustments, such as tracking which sales qualify for discounts and how much is owed based on when payments are made. This adds complexity to your accounting procedures. A payments platform that can facilitate payment customisations and sync with your accounting software can make the process more efficient.

It’s important to weigh the benefits and drawbacks of offering payment term discounts to determine whether it makes sense for your business.

Research the payment terms and discount offerings of other companies in your industry to ensure your offer is competitive.

How do I decide if net 30 terms are suitable for my business?

Deciding whether net 30 payment terms are right for your business depends on several factors. Here are a few considerations to help you decide:

  1. Cash flow: Offering net 30 payment terms can help attract more customers and increase sales, but it’s essential to assess whether your business has sufficient cash flow to cover any gaps in payment collection.
  2. Industry norms: Consider what payment terms are standard in your industry. For example, if your competitors offer net 30 days payment terms you may need to do the same to stay competitive.
  3. Risk tolerance: Consider how comfortable you are with the risk of non-payment. Offering payment terms always comes with the risk of delayed or non-payment, which could impact your business’s financial stability. Credit risk monitoring and visibility to customers’ business credit scores can guide you before extending payment terms to customers.
  4. Customer relationships: Consider the nature of your customer relationships. The risk of offering payment terms is more manageable with trustworthy customers with whom you already have a long-standing relationship. Offering payment terms will also help improve your relationship with them. On the other hand, customers with a higher risk of non-payment might not be suitable for net 30 payment terms.
  5. Collection process: Consider whether your business has reliable accounts receivable software to track and collect outstanding payments. Offering payment terms requires efficient and effective invoicing and collection processes.
  6. Payment methods: To ensure timely payments of invoices with net 30 and other payment terms, it is important to have a streamlined payment process. This includes offering clients multiple payment options and providing an online payment portal for their convenience. By making it easy for clients to pay, you increase the likelihood of receiving payments on time and having positive payment experiences. Therefore, it is essential to assess the efficiency of your payment methods and overall payment process to facilitate the timely collection of payments.

Whether a net 30 payment term is right for your business will depend on your unique circumstances. It’s crucial to weigh the benefits and risks and decide to align with your business’s financial goals and needs.


In conclusion, net 30 payment terms are a common payment option that benefits businesses and customers. Offering payment terms can attract more customers and increase sales while providing businesses with a predictable timeline for payment and improved cash flow.

However, businesses should consider their and their customer’s financial situation and ability to manage late payments before offering net 30 payment terms. By understanding the pros and cons of net 30 and other payment terms, businesses can make informed decisions that best suit their needs and those of their customers.

Offering payment terms impacts your accounts receivable. AR automation software can help you manage your accounts receivable, so you can focus on what you do best – growing your business. Speak with one of our AR experts today to learn about options for your business.

Net 30 FAQs

Q- What is the difference between Net 45 and Net 30?

Net 30 payment terms require payment within 30 days of the invoice date, which is a common and fair practice.

Net 45 payment terms, however, allow payment to be made within 45 days of the invoice date, providing more time for larger transactions or customers needing more time to process payments.

Although Net 30 payment terms are more widely used, Net 45 can be negotiated depending on the transaction and buyer’s payment history. However, longer payment terms can also increase the risk of non-payment, so it’s important to consider the creditworthiness of the customer and any potential risks before agreeing to them.

Q – Does net 30 have interest?

There are no interest charges if a customer pays their invoice within 30 days as specified in the Net 30 payment terms. But if the customer fails to make the payment on time, the seller can charge them a late fee or interest penalty.

The invoice or contract between the buyer and seller should provide the details of the late fee or interest penalty. To avoid any confusion or disagreements later, both parties should comprehend the terms and conditions of the payment agreement before engaging in any business transaction.

Q – What happens if you don’t pay a net 30 in time?

Late fees or penalties may be imposed on customers who do not pay invoices within the Net 30 payment terms, and the specifics of these fees should be clearly stated in the invoice or contract.

These fees usually take the form of a percentage of the unpaid amount or a fixed fee. In cases where customers still fail to pay, sellers may take additional steps to recover the debt, such as sending reminders, using debt collectors, or pursuing legal action.

Resolving payment issues in a timely manner is crucial for both parties, and customers should communicate with sellers regarding any concerns to avoid negative consequences.

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