Solving Net 30 and Net 60 Payment Terms with Invoice Factoring

Factoring written on a note and invoices.
Factoring written on a note and documents.

It’s common for companies in the B2B sector to offer Net 30 and Net 60 invoice terms, but they don’t always serve businesses well. If your company sometimes struggles to cover expenses or make purchases while you wait weeks or months for payment, you probably know this all too well. Thankfully, if they’re at the root of your cash flow problems, you have an easy solution—invoice factoring. In this article, we’ll walk you through the basics of Net 30 and Net 60, cover how they can rob business owners of working capital, and how working with a factoring company can help.

What Are Net 30 and Net 60, and Why Does it Matter?

Net 30 and Net 60 are common payment terms. The digits represent the number of days the customer has to make an invoice payment. Companies sometimes offer longer payment terms, such as 90 days (Net 90), or shorter net payment terms, such as 7 days (Net 7) or 14 days (Net 14), too. A business owner can go with a shorter invoicing payment term to accelerate their cash flow to ensure they can pay their own suppliers, payroll, and other expenses, or opt for a longer invoicing term if the situation calls for it.

What Does Net 30 or Net 60 Mean on an Invoice?

When net terms appear on invoices, it means the business that owes the money can wait to pay. Although many business owners don’t realize it, it’s a form of term credit. Moreover, it’s the equivalent of giving clients a short-term loan without interest.

In the case of Net 30, the full amount due is expected within 30 days. Generally speaking, the clock starts ticking when the invoice is generated, but sometimes the start date is when goods or services are delivered and, other times, the due date is 30 days after receipt of the invoice. Business owners usually include a due date for clarity too.

Net terms are often paired with other invoicing terms, including discounts for fast payment. For example, 5/10 Net 30 means a five percent discount will be applied if it’s paid within ten days. However, the total amount is due within 30 regardless. In these cases, the first digit represents the percent discount, and the second digit represents the number of days the business must pay within to qualify for the discount.

About two-thirds of small-business owners are impacted by late payments, too, per Intuit. To help prevent this, many tack on a late fee when the total amount isn’t paid by the due date.

Are There Benefits to Offering Net 30 or Net 60 Terms?

Offering Net 30 and Net 60 terms can help you build a stronger business overall.

  • You can work with a wider client base. Many companies simply do not pay when the initial transaction occurs. They require an invoice and have an internal process for handling payments. If a business demands payment at the time of service, they’re unable to work with many larger clients.
  • You can attract new clients. Giving clients time to pay can seal the deal on negotiations, allowing you to win more business.
  • You can secure more work. Often, customers are able to place larger orders with suppliers if they have additional time to pay, as the extended payment window allows them more time to turn raw goods into cash.
  • You can build relationships. Offering term credit shows your clients you trust them to pay.

What Are the Negatives to Using Net 30 or Net 60 Payment Terms?

Despite the benefits, Net 30 and Net 60 payment terms can create hardships, especially if you operate a small business with tight margins. In short, your working capital becomes tied up in your accounts receivable, so most of the difficulties you face surround the lack of cash on hand.

  • You may struggle to cover payroll and other expenses. More than 40 percent of small-business owners have occasionally been unable to cover payroll per Intuit. You may also be unable to cover other recurring expenses, including rent and utilities.  
  • You can get hit with late fees of your own. Being unable to pay your bills is expensive.
  • You may not qualify for vendor discounts. With limited working capital, you’re more likely to place many small orders from your vendors rather than one large one, which means you have little room for negotiation on pricing and aren’t likely to qualify for volume discounts.
  • Your business growth may stagnate. Without cash for things like upgrades, purchasing new equipment, and running marketing campaigns, it’s difficult for a business to grow.
  • You may go without a paycheck. When the business is strapped for cash, business owners routinely step up and skip paying themselves first. More than 51 percent have foregone a paycheck, according to Inc. A full quarter goes more than six months without one. 
  • Your stress levels are likely to skyrocket. According to Intuit, nearly 70 percent of small-business owners report being kept up at night by cash flow problems.
  • You may unintentionally make an expensive financial decision to boost working capital. All too often, business owners wait until they’re in a serious bind to correct a working capital deficit, which makes them vulnerable to long-term contracts with excess fees.

If You Want to Get Paid Faster, Consider Invoice Factoring

Invoice factoring gives you all the benefits of offering flexible payment terms but without the headaches. You still work as you do now and invoice your B2B clients, but instead of waiting 30 or 60 days for them to pay, the factoring company pays you right away. It’s easy to qualify, and approval isn’t reliant on your credit score, so it’s the ideal solution even if your business has been turned down for bank loans and lines of credit. To learn more, request a complimentary Charter Capital rate quote.  

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