Net payment terms — the number of days you give a customer to pay an invoice — decide who finances the sale. Offer net 30 and you are lending that customer a month of your cash, interest-free. Offer net 60 and the loan doubles. The right term is a cash-flow decision, not an administrative default, and it should match your own bills: payroll, rent and suppliers do not wait.
The most common setting in US business-to-business trade is net 30, meaning the full balance is due 30 calendar days from the agreed start date, weekends and holidays included. Longer terms such as net 60 and net 90 favor the buyer; shorter terms favor the seller. Neither is wrong. What matters is that you chose the term, rather than inheriting it.
This guide explains how the terms work, what a single 60-day account can cost you in tied-up cash, and how to tighten terms without losing customers. It is information, not financial or legal advice; your own books and, where a contract is involved, your own counsel, set the limits.
What do net payment terms actually mean?
A net term tells a customer how many days they have to pay after the invoice date. Net 15 means 15 days, net 30 means 30, and so on through net 90. The word "net" means the full amount owed, before any early-payment discount. According to Melio, net 30 acts like a short, interest-free loan — an arrangement known as trade credit, and one of the most common ways businesses fund day-to-day operations.
Watch the start date. The clock can begin on the invoice date, the ship date, or the delivery date. A delivery-date start can push the real deadline weeks later than an invoice-date start, so agree on it upfront and write it on the invoice. For recurring relationships, terms belong in the signed contract, not just the invoice; Corpay notes that invoice-level terms are easy to dispute and easy to quietly change, while a signed agreement is not.
How does a 60-day account tie up your cash?
Here is the worked example. Suppose you invoice a corporate customer $50,000 on net 60 terms, and your monthly operating costs are $40,000. That invoice sits unpaid for two full months. During that time, $50,000 of your money is financing your customer's operations instead of yours.
Now stack it. If that customer orders monthly and always pays on day 60, you will typically have two invoices outstanding at once — roughly $100,000 tied up in a single account. If your own suppliers pay you the compliment of only net 15, the squeeze is worse: cash leaves your business faster than it arrives. The gap between delivering work and getting paid is often called the cash gap, and a longer term widens it. The US Chamber of Commerce puts it plainly: assume every customer will max out the term. If you offer net 30, plan as though payment lands on day 30.
Longer terms also raise your exposure if a customer runs into trouble. More can go wrong in 90 days than in 15. If a large account slides into bankruptcy while your invoices are outstanding, your position as an unsecured vendor is limited — see When a Customer Files Chapter 11: What Vendors Actually Get.
When should you offer longer terms?
Longer terms are a sales tool. Businesses that offer net terms can sell to customers who themselves have cash-flow constraints, using trade credit as a competitive advantage. Net 60 is common when selling to large corporations, hospitals, universities and government agencies — organizations that use their payment terms as a working-capital tool, per the US Chamber. Net 90 is mostly confined to enterprise procurement, government contracts and some supply chains; very few small businesses can carry it comfortably.
Before extending terms, map your own outflows. If payroll and supplier bills come due fast, you cannot afford to wait 90 days to get paid. Check three things:
- Your cash cushion. Can you cover two or three cycles of the largest account's invoices without that money?
- Industry norms. Many buyers assume net 30; norms vary by sector. A J.P. Morgan treasury consultant cited by J.P. Morgan notes that petroleum invoices, for example, are often paid within a day or two.
- Negotiating leverage. Terms are largely driven by who holds the trade leverage. A vendor selling something unique or critical to the buyer holds more power than one selling a commodity.
If the customer insists on net 60, price for it. Extended terms transfer a financing cost to you, and sophisticated suppliers eventually build that cost into their prices. You can do the same.
What is the cheapest way to get paid faster?
Early-payment discounts are the standard tool. The most common version, 2/10 net 30, means a 2% discount if the customer pays within 10 days; otherwise the full balance is due in 30. On a $1,000 invoice, the customer pays $980 by day 10 or $1,000 by day 30.
The discount looks small and is not. Capturing a 2% discount for paying 20 days early works out to roughly 37% on an annualized basis, according to Corpay. If your cost of capital is below that, the discount beats holding the cash. The same logic runs in reverse when you are the buyer: J.P. Morgan's analysis stresses that buyers who consistently capture discounts can find the bottom-line savings significant, though many firms still hold cash as a cushion in uncertain times.
One caution from the seller's side: discounts come out of margin. If a $1,000 order nets you $200 of profit, a 2% discount cuts that profit to $180 — a 10% hit, as an example published by the US Chamber's coverage of net terms illustrates. On thin margins, that can be the difference between profit and loss. Offer discounts where the speed of cash is worth more than the percentage, and nowhere else.
How do you tighten terms without losing customers?
Start with new accounts. Set the term you can afford at onboarding; renegotiating an established term is harder than setting the right one first. Then work the existing book in stages:
- Segment your customers. Reliable payers on small invoices may not need the same term as a slow-paying large account. Tighten selectively, not across the board.
- Move the start date, not the number. Shifting from a delivery-date start to an invoice-date start shortens the real deadline without changing the headline term.
- Offer a bridge. Pair a shorter term with an early-payment discount, so fast payers are rewarded rather than squeezed.
- Put it in writing. Confirm the change in the contract or order confirmation, with the start date stated, before it takes effect on new invoices.
Enforcement matters more than the number. State late-fee terms on the invoice, track which accounts pay late, and follow up on day 31, not day 45. Administrative discipline — knowing who owes what and when — is part of the cost of offering terms at all. And if a customer's distress is the reason you are tightening, it may already be too late for terms to fix it.
What this means for your operation
Every invoice you send sets an interest-free loan size and a repayment date. Net 30 is the safe default most buyers expect; net 60 doubles the float you are financing and should be priced, capped or collateralized in some way; discounts buy speed at a known annualized cost. Check the terms on both sides of your books — what you grant customers and what your suppliers grant you — and make sure the two clocks do not run against each other. For more on the borrowing side of the ledger, see How the 6.75% Prime Rate Resets Your SBA Loan Cost, and for the pricing side, Price-Escalation Clauses: Read Them Before Prices Move.
