What are net terms?

Net terms specify when payment is due after an invoice is issued. Net 30 means payment is due 30 days from the invoice date. Net 15, Net 45, and Net 60 are also common. The term sets expectations for both parties and affects cash flow timing. Longer terms benefit the buyer's cash flow while creating collection risk for the seller.

Setting appropriate terms for your firm

Consider your cash flow needs, your industry's client expectations, and your competitive positioning. Shorter terms improve cash flow but may face client pushback. Longer terms can differentiate you, but they can also strain working capital. Enterprise clients often demand Net 60 or longer, regardless of your preferences. Factor this into pricing and cash planning.

Enforcing payment terms

State terms clearly on every invoice. Send reminders before due dates. Follow up promptly when payments are late. Consider offering early payment discounts, such as 2/10 Net 30, to incentivize faster payment. Track days sales outstanding to monitor collection efficiency. Terms that exist on paper but are not enforced have no practical effect.