Net Terms

Net terms are a deferred payment agreement that gives a B2B buyer a fixed window to pay an invoice after receiving goods or services. The seller delivers upfront and the buyer pays later. The number in the term - Net 30, Net 60, Net 90 - represents the calendar days allowed before payment is due from the invoice date. Net terms are a cornerstone of B2B trade credit across construction, distribution, professional services, and virtually every other sector where invoice-based billing is the norm.

How Net Terms Work in Practice

The mechanics are straightforward. The seller delivers goods or completes a service and issues a dated invoice. The net period begins on the invoice date (or delivery date, depending on what has been agreed), and payment is due by the end of that window. Net terms are almost always calculated in calendar days, not business days - weekends and public holidays count within the payment window.

The most widely used variant is Net 30, which is the default across a wide range of B2B industries. Net 60 and Net 90 are more common in sectors with large invoice values or long project cycles - construction and materials suppliers typically operate on Net 60 to Net 90. Shorter terms such as Net 15 are used where fast cash collection is essential or when dealing with new customers where the payment relationship is not yet established.

Early payment discounts are a common addition. The notation "2/10 Net 30" means the buyer can take a 2% discount on the invoice total if they pay within 10 days; if not, the full amount is due within 30 days. For a buyer with available cash, paying early to capture that 2% discount translates to an annualized return of approximately 36.5% - a financially sound decision whenever working capital allows.

Why Net Terms Matter for Cash Flow

The choice of payment terms directly shapes a business's working capital position. A company offering Net 60 to all its customers while paying its own suppliers on Net 30 is perpetually running a cash gap - it pays out before it collects in. For SMBs without a large cash reserve, this gap can create real pressure even when the order book is healthy.

For sellers, longer net terms mean carrying the receivable for longer, which ties up working capital and increases the risk of late or non-payment. For buyers, longer terms free up cash to operate but can signal financial stress if consistently pushed beyond what is normal in that industry.

In the UK, the Late Payment of Commercial Debts Act allows statutory interest to apply automatically on overdue B2B invoices even where no explicit late payment clause has been included in the contract. Stating your net terms clearly on every invoice - and following up consistently when they are missed - is the starting point for managing receivables effectively.