Among businesses that allow customers to pay on credit, the most common net terms are net 30, net 60, and net 90.
Net terms indicate when the vendor expects payment from a customer who pays on credit.
“Net 60” terms, for instance, mean that the vendor expects full payment within 60 days from the date of the invoice.
What are the Risks of Offering Net terms?
The main risk of offering net terms is facing cash flow problems. For example, offering net 60 terms means it could take up to 60 days to convert revenue to cash. The average company expects payment in 27 days, but the average payment period is 34 days. Even a difference of a few days could lead to cash flow issues.
By offering net terms, your company may:
- Experience a cash crunch
- Be unable to meet financial commitments to suppliers and creditors
- Spend more due to credit costs, which are the cost to borrow cash
- Get paid past the due date
- Not get paid
How to make sure you get paid for your work with Net terms?
You can make sure you get paid for work on Net terms by combining trade credit with accounts receivable automation. First, intelligent automation of trade credit lowers the credit risk you assume by extending credit. Accounts receivable automation then reduces costs and eliminates reliance on manual processes that are error-prone. Speeding up invoice processing time through automation also generates payments faster.
87% of companies that embraced A/R automation reported faster processing speeds, and 72% reported lower costs.