Net 30 Billing is a common and generally appreciated flexible invoicing option for businesses. In this article, we’ll break down what it means, how it works, and why it may be the right approach to take with your clients.
What is the Meaning of Net 30 Billing?
Net 30 billing is an invoicing term that means the recipient of an invoice is expected to pay it in full within 30 days of the date it was received. It’s effectively a “trade credit” that your business offers to your client.
For example, if you were to send out an invoice on January 2, 2020, you would expect payment on or before February 1, 2020. The 30 days between initial invoicing and when payment is received can be looked at like a credit extension you’re providing to your customer.
Is There a Difference Between Net 30 Billing and Due in 30 Days?
Although these terms are similar, they do have a subtle difference. Net 30 billing is an inbuilt trade credit facility that your business offers as a gesture to your clients. “Due in 30 days,” on the other hand, simply means your client has that time period to pay their invoice.
Is Net 30 Billing a Standard Practice?
Net 30 billing is widely used for invoicing. Many of your clients will readily agree to net 30 terms, as their accounts payable departments are likely already familiar with the practice.
How Does Net 30 Billing Work?
Typically, net 30 billing works like this:
- You set up a client in your invoicing system.
- You put in payment terms of 30 days for that client, or set it on an invoice-by-invoice basis.
- You decide if you want to offer a discount for invoices that are paid more quickly.
- You include payment terms on the invoice.
- You raise an invoice and date it for when you’re expecting to send it out.
- Your invoicing system will display the original invoice date and when the invoice is expected to be paid by.
- You send the invoice to the client.
- They pay within 30 days.
How Can I Define Net 30 Billing Terms on My Invoices?
It’s important to use clear wording on your client invoices so they know exactly what to expect when making payment. Net 30 billing often comes with incentivizing discounts, so it’s important to spell out exactly what yours are on the invoice itself, and include them in the covering email. If you charge penalties for a late payment, it’s also important to accurately define what those penalties are.
Are There Alternatives to Net 30 Billing?
Absolutely! And while your customers will ultimately need to agree to the terms, it’s up to you to decide what’s best for your business. Invoices payable upon receipt, net 7, and net 14 are also common invoicing payment terms.
Will All Clients Accept Net 30 Billing?
Because many people are resistant to short payment terms, it’s a good bet that your clients will be happy with net 30 billing. Large businesses and corporations, however, tend to be the exception. Due to their size and structure, these clients may require net 60 or net 90 day invoicing terms.
How Can I Encourage Clients to Pay Within 30 Days?
You know how helpful it is for your cash flow to get money into your business as soon as possible. One way to achieve this is to offer a discount on the invoice if your client submits payment sooner than 30 days. Typical invoice discounts range from two to five percent if the client pays within seven days. Here’s an example of how that might work in practice:
- You send out an invoice for $500 on March 1, 2020.
- You offer a three percent discount if the client pays within seven days, by March 8, 2020.
- If they pay before March 8, your client will save $15, and will only owe $485
- If they pay after March 8, they will be required to pay the full amount.
While $15 seems like minimal savings to some, it adds up over the course of several months and years, leading to drastic cost savings.
What Happens if the Client Doesn’t Pay Within 30 Days?
Just like it’s up to you to define specific terms for net 30 billing and discounts for paying early, it’s also your responsibility to clearly outline what happens if a payment is made late. You will need to define penalties for late payments and spell them out on your invoice. For example, you might charge two percent of the unpaid amount for every month that passes without payment.
If you don’t include this language on the original invoice, you won’t be as protected in the case of a late or missed payment.
What Are the Advantages of Net 30 Billing?
Net 30 billing provides several benefits for your clients::
- Because they can take longer to pay you, they’ll have a healthier cash flow.
- If internal approval is required before an invoice can be paid, net 30 days provides plenty of time for that to happen.
- If you decide to offer a discount for paying early, this will incentivize customers to pay you faster.
Now that you know how your customers will benefit, here’s what your business can look forward to:
- Clients will appreciate your flexibility and are likely to pay you first because of it.
- Staying ahead of some of your competitors due to providing more time to pay.
- You can build the 30-day payment cycle into your cash flow forecasts.
What are the Disadvantages of Net 30 Billing?
Net 30 billing is generally a good idea, but there are some potential drawbacks:
- If you have a tight cash flow, and are reliant on prompt payment, then Net 30 may not be right for you.
- If you can’t easily cover your operating costs, use shorter payment terms.
- For new clients, you may not want to offer net 30 until you’ve established a trusted relationship.
Should I Offer All Clients Net 30 Billing?
We recommend offering net 30 billing terms on a case-by-case basis. For most clients, you might want to start with invoices that are due upon receipt. As you build rapport and a trusted working relationship with clients, you can extend payment terms and transition those accounts to net 30 billing.
Want to Offer Net 30 Terms? Biller Genie Can Help!
We hope you’ve found this guide to net 30 billing helpful. Biller Genie makes offering net 30 payment terms (and other payment windows) easy, automatic, and stress free. Sign up for your free Biller Genie account to explore just how easy it is to get your clients on an ideal payment schedule for your business and theirs.