Net 30 terms can help a B2B business (see what is a B2B company) expand their customer base and keep accounts from churning.
Also: everyone’s doing it.
We know, typically not a great reason to do stuff. But offering net 30 to buyers can keep your wholesale operation competitive.
So, just what does net 30 mean and why is it such a powerful tool?
Net 30 Terms: Net 30 Payment Terms
Net 10, net 15, net 30, and net 60 are all forms of credit extended from a seller to a buyer. It’s a way of allowing some flexibility for B2B payments.
The most common is net 30.
What Is Net 30 Terms?
Here’s the net 30 meaning: It’s when a seller extends a buyer 30 calendar days to pay the full amount for goods provided or services rendered. Calendar days include weekends and holidays.
It could be 30 days from invoice, shipping, or delivery. That depends on the parties involved in the agreement. If you ever have any confusion about that, reach out to the other party to the contract to clarify.
Typically net 30 payment terms include an interest penalty that begins accruing on the 31st day if payment is not made. Some eCommerce platforms, like BlueCart, can even include late fee penalties automatically in their invoices.
Why Use Net 30 Days?
First, let’s think for a moment about why late payments are relatively common in a wholesale marketplace and the industry as a whole.
It’s usually because:
- Late payments can benefit a company’s cash flow. Let’s say a large coffee shop is spending $50,000 cash per month with a coffee wholesaler. Depending on the business’s operational model and existing loans and credit structure, they may not have $50k cash to spend every month. They may only have that type of money every other month. Paying every month on time, then, requires them to overdraft or take on more debt. Both of which reflect poorly on a business’s balance sheet. And diminish a company’s ability to solve urgent issues that may need cash.
- There may be administrative inefficiencies. Larger companies don’t just pay up like someone buying a pack of gum at the gas station. They’ve got processes and workflows for issuing payment. Purchasing, Payments, Finance, multiple levels of approval, etc. Sometimes it doesn’t all work like clockwork. This can be a particular problem when dealing with local municipalities or government authorities.
- Sometimes there are internal processes sellers must follow for payments to be released. Logging into a buyers online payment portal is relatively common for very large purchasers that have to automate payments. If you don’t follow the process exactly, it can result in delays.
By extending net 30 payment terms to a buyer, sellers make it very clear when payment is due, simplifying the process. It also increases a supplier’s chance of being paid on time, which is great for their record keeping and operational efficiency.
And, again, it benefits buyers by increasing their cash flow. Which typically makes them happier with the transaction as a whole. And happy clients are repeat clients that come to you when they hit their reorder points (see reorder point formula).
So how do buyers know this? Because net 30 terms are included on invoices. And if you use an eCommerce platform like BlueCart Digital Storefront, it can all be done automatically for you.
When a client or buyer sees net 30 on an invoice, it means they have up to 30 calendar days to provide full payment.
And the designation of net 30 is usually included in the terms section of an invoice.
Net 30 Invoice: Where Are Net 30 Payment Terms?
Some invoices have a lot of payment terms on them. If your business is young or you’re relatively new to invoice processing and sending, it may be confusing.
Typically, any designation of repayment terms, including net 30, is in the payment terms section of an invoice.
2/10 Net 30: 2/10 Net 30 Meaning
Sometimes net 30 payments include an incentive to pay before the due date. That incentive is identified as two numbers separated by a forward slash before net 30. The first number is the percentage discount and the second the new due date to receive that discount.
What Does 2/10 Net 30 Mean?
The terms 2/10 net 30 mean that a buyer gets a 2% discount if the total balance is paid within 10 days. Otherwise, they have 30 days to pay.
While 30 days repayment time benefits clients, it’s ultimately safer for suppliers to get payments faster. Outstanding money always carries risk.
What Does 1/10 Net 30 Mean?
1/10 net 30 means that a buyer gets a 1% discount if the total balance is paid within 10 days. If not, then they’ve got 30 days to pay.
1/10 net 30, 2/10 net 30, and 3/10 net 30 are the three most common incentives attached to net 30 payment terms.
Benefits of a Net 30 Account
Net 30 business accounts are also called vendor credit, supplier credit, or trade credit. A net 30 account provides a lot of benefits for buyers, especially for young businesses
First, it increases cash flow for buyers, as we’ve covered. This can be a huge benefit for a young business that’s just getting its bearings. The flexibility of being able to make a payment over 30 days usually means overdrafts and more debt aren't needed to pay in full.
Second, young businesses can use net 30 business accounts to build credit. Lots of vendors don’t require any personal credit. Taking out net 30 credit terms and successfully repaying them is a great way to build up to a credit score. A score that can qualify your business for serious, game-changing loans down the road.
And finally, it helps buyers build relationships and references. Repeatedly meeting net 30 payment terms is a great way to get a wholesaler to vouch for a buyer’s trustworthiness in the future. And references like that are critical to securing more and better relationships with vendors.
The Cons of Using Net 30 Payment
There are some disadvantages to extending net 30 payments to clients.
- Some wholesalers aren’t big enough to handle many accounts paying 30 days after invoice. They simply don’t have the cash flow to cover the delay.
- Some clients may take advantage of flexible payment terms, and a net 30 structure can open that door. They’ll start paying later and later and later. Even if interest is accruing. Since you’re not a bank and earning interest isn’t your business model, this isn’t sustainable for a supplier. Late payments can get out of hand quickly and your cash flow suffers.
- Late penalties and interest can discourage companies from buying from suppliers with particularly strict net 30 penalties.
- Offering net 30 always includes risk because a supplier is losing assets at zero cost. It’s especially risky with new clients with whom a supplier has no relationship. Though requiring pre-payment, which BlueCart Payment Processing can do, removes a lot of this risk.
But for some businesses, net 30 is the perfect mix of flexibility and incentive to bring in buyers and keep them happy. And a good inventory management process is all about finding that balance.
Net 30 Vendors List
Here’s a list of four great net 30 companies that can help small businesses build credit with net 30 terms.
ULINE has an 800+ page digital catalog with over 37,000 packaging, shipping, industrial, and janitorial products. They’re also reputed to have some of the best supplier customer service in the industry. ULINE reports credit to commercial analytics firm Dun & Bradstreet .
Central Restaurant Products is a leading distributor of cooking and food-prep equipment, refrigeration equipment, dining room furniture, shelving, racks, pizza equipment, concessions gear, and dishwashing and sanitation items. They offer net 30 terms based on a check of a business’s credit and not personal credit. And it’s free upon approval.
Quill is a wholesaler of office and administrative supplies. A necessity for any type of business. To apply for a net 30 repayment term, you can choose the invoice option at checkout after creating an account. Quill then verifies your business and gets back to you with an approval decision.
Net 30 Calculator
Calculating 2/10 net 30 is possible with a basic calculator. The default one on your computer, for example.
All you need is the 2/10 net 30 formula:
Amount due in 10 days = Total amount x 0.98
Here’s an example. Let’s say the total due is $20,000. If the payment terms are 2/10 net 30, then:
$20,000 is due in 30 days
$19,600 ($20,000 x 0.98) is due in 10 days
There you have it. The magic of flexible repayment terms. Done right, it’s good for both vendors and buyers.
And it’s easy to implement using BlueCart as your ecommerce platform. Invoicing is automatic, along with payment reminders, late payment fees, and prevention of more orders from overdue clients.