Net payment terms: A guide for businesses

- •What are net payment terms?
- •Commonly used net payment terms
- •Net payment terms vs credit cards
- •Pros and cons of offering net payment terms
- •Should your business offer net payment terms?
- •Managing net payment terms as a global business
- •Make and receive payments on time, every time
- •Frequently asked questions
Key takeaways
Net payment terms give customers a set period to make payment after receiving an invoice. The most commonly used terms are net 30, net 60, and net 90.
Offering net payment terms can increase sales, improve customer loyalty, and help you maintain a healthy cash flow.
Airwallex helps you manage net payment terms efficiently, giving you real-time visibility over incoming and outgoing payments, flexible payment options for your customers, and automated workflows to keep your cash flow healthy.
Staying on top of your finances can be tricky when you have multiple invoices going in and out of your system at different times, be it customer payments or supplier payouts. These different timelines can make it difficult to get a clear picture of your cash flow, especially when payment schedules vary. When managing invoices, you may come across net payment terms, which define how long customers have to settle their payments after an invoice is issued.
Understanding how net payment terms work and how they can impact your business can help you plan and manage your finances more effectively. That’ll keep your cash flow steady and customer relationships strong. For example, offering net terms to your customers can extend trust and encourage recurring orders, giving you a predictable income stream.
In this guide, we’ll break down what net payment terms are, explore their pros and cons, and help you decide if net payment terms are right for your business.
What are net payment terms?
Net payment terms define when a payment is due after an invoice is issued. It's a set period stated on an invoice, usually ranging from 15 to 90 days. It provides a clear deadline for when the buyer should make a payment, and when the seller should receive it. For example, an invoice that reads “net 30” means that full payment is due 30 days after the invoice date.
Net payment terms help buyers and sellers manage their cash flows more effectively, and are common in business-to-business (B2B) payments. This arrangement can benefit small- to medium-sized businesses that require more flexibility. When you’re paying vendors and suppliers, net payment terms give you more flexibility for timing your payment. And when receiving a payment from a vendor or supplier, offering net payment terms can give you a more predictable settlement schedule that helps you manage your cash flow.
Commonly used net payment terms
Here are some commonly used net payment terms:
Net 15
What it means: payment is due 15 days after the invoice date.
Who should use it: businesses managing smaller, time-sensitive transactions, such as retail or small-scale service providers.
What it does: secures the cash flow needed to meet near-term operational demands.
Net 30
What it means: payment is due 30 days after the invoice date.
Who should use it: small- and medium-sized businesses.
What it does: strikes a balance between giving customers the flexibility to manage their finances and ensuring that the business receives payments on time. This term helps businesses maintain a steady cash flow while building trust with their customers.
Net 60
What it means: payment is due 60 days after the invoice date.
Who should use it: businesses managing complex transactions.
What it does: attracts more customers with the generous payment window, nurturing long-term relationships and securing more substantial contracts.
Net 90
What it means: payment is due 90 days after the invoice date.
Who should use it: businesses in capital-intensive industries, with long project cycles or staggered revenue streams.
What it does: maintains a healthy cash flow when businesses align their payment cycles with project milestones.
Get paid faster
Net payment terms vs credit cards
Besides net payment terms, credit cards are another type of short-term financing option. While both net payment terms and credit cards allow deferred payments, they work and affect cash flow differently. In short, net payment terms let customers settle a payment on a later date, usually at low or no fees and interest. Credit cards let customers settle payments immediately, but usually with a credit card processing fee. On top of that, late credit card repayments incur an interest fee.
| Net payment terms | Credit cards |
---|---|---|
Payment schedule (when sellers can expect to receive payment) | Usually 30, 60, or 90 days after the invoice is issued | Up to 30 days, but may have a grace period |
Payment acceptance fees (seller’s cost) | Domestic payments: None International payments: usually a flat fee, plus FX markups and intermediary bank fees | Domestic payments: typically a payment processing fee* (usually 1.10–3.15% of the transaction amount)1 + a fixed payment gateway fee International payments: typically a payment processing fee (higher for non-local cards) + payment gateway fee + settlement fee + currency conversion fee |
Interest (buyer’s cost) | None, unless the seller imposes late fees or interest for overdue payment | Average 24% APR as of June 20252 (charged by card issuer) |
Impact on cash flow | Slower inflow of funds | Faster inflow of funds |
*Payment processing fees typically include interchange fees, assessment fees, and other platform or acquirer costs. These fees may be higher for non-local (foreign-issued) cards.
Here's how net payment terms compare against credit card payments:
Net payment terms offer longer grace periods compared to credit cards
When you offer net payment terms, you get to extend credit on your terms, whether it’s 30, 60, or 90 days. Net terms give you the flexibility to align payment schedules with your customers’ needs while still forecasting your cash inflows predictably. With credit card payments, you have less control to structure your inflows, since it’s the card issuer that extends the credit line to your customers.
Net payment terms don’t come with payment processing costs
Net payment terms generally don’t involve transaction fees, unless you set them. Customers only incur interest or late fees set by you if they miss payment deadlines. Accepting card payments, in contrast, incurs a 1–3% foreign transaction fee. This fee can reduce your profit margin and affect your pricing competitiveness.
Net payment terms can strengthen customer relationships
When you extend a line of credit directly to your customers, you’re showing an act of goodwill, helping you build stronger relationships. Offering net terms is essentially providing short-term financing that helps your customers manage their cash flow, positioning you as a reliable partner. This differs from credit card payments, where the bank extends the line of credit and earns the customers’ trust instead.
Pros and cons of offering net payment terms
Offering net payment terms can be a strategic move, but it’s important to weigh the pros and cons before you decide.
Pros of net payment terms
Encourage more sales: When customers don't have to pay upfront, they may be more willing to make larger orders or more frequent purchases. You can further drive conversions by making it easier for them to pay you, such as by adding payment links in emails and invoices.
Improve customer relationships: Giving customers the flexibility to pay can build trust and strengthen your relationship with them.
Gain a competitive advantage: If your competitors offer net payment terms, consider doing the same to stay competitive. You can further differentiate yourself by offering more favourable terms or better customer service.
Cons of net payment terms
Longer wait for payment: While net payment terms can help you predict cash flow more accurately, it could strain your cash flow in the short term if you have insufficient cash reserves.
Risk of late payments: Late payments can affect your ability to meet financial obligations, such as paying suppliers or covering operational costs. To help your customers pay you on time, it counts to offer fast and intuitive ways to pay, such as via credit cards, digital wallets, or bank transfers.
Complex accounting and reconciliation: Managing staggered payment terms can be complex and time-consuming. The right payment provider can help by automating invoice approvals and payments, giving you a clearer view of your outgoing cash flow and reducing manual reconciliation.
Overall, offering net payment terms can be great for giving your customers flexibility to pay. But your systems should be able to handle staggered payments and collect payments quickly when they're due.
Should your business offer net payment terms?
Deciding whether to offer net payment terms depends on your industry, customer base, risk tolerance, and cash position. Consider these questions before making a decision:
Are net payment terms common in your industry? In sectors like manufacturing, wholesale, or B2B services, net payment terms are often the norm. Offering net terms aligns with what your prospects already expect, making it easier to gain trust and convert new customers.
Can you assess your customers’ creditworthiness? Conduct credit checks to identify customers with a history of timely payments, or start with shorter terms before extending to net 60 or 90.
Do you have strategies in place to ensure timely payments? Providing clear payment information helps minimise confusion and delays. Offering local currencies and familiar payment methods makes it easier for customers to pay you on time.
How would you mitigate late payments? Consider incentivising early payments with small discounts, or charging late fees or interest to discourage late payments.
Do you have tools in place to track payment status and follow up? Modern fintechs, like Airwallex, offer solutions that streamline both incoming and outgoing payments, giving you real-time visibility on payment statuses and deadlines.
Managing net payment terms as a global business
Net terms are often built around domestic payment infrastructure: local bank transfers, local currencies, and familiar banking systems. But when you manage international customers or suppliers, the process becomes more complex. Payments may get delayed when funds are sent via unfamiliar banking rails or when there are incompatible payment methods. Currency mismatches require FX conversions, which can mean slower and costlier transactions.
Whether you’re expecting funds from a customer or need to pay a supplier across borders, these issues can disrupt even the best-managed net terms. You might be offering net 30 to your customers while simultaneously working with a supplier who expects payment in net 15. Managing overlapping timelines can strain your cash flow if not managed well, especially when operating across different countries and currencies.
Net terms are only effective if your customer can realistically pay you on time. That’s why businesses are rethinking how they manage B2B payments: pairing flexible terms with global payment infrastructure.
Make and receive payments on time, every time
Don’t let mismatched payment schedules slow down your growth. Whether it’s net 30 or net 60 terms, Airwallex makes it easy for you to make and receive payments on time, every time – all on one platform.
Reduce the risk of late payments by letting customers pay you easily and quickly, no matter what payment terms you offer. With Airwallex, your customers can pay you using 160+ local payment methods and major card schemes, in 130+ currencies. You can also embed Payment Links on your invoices.
To make payments on time and maintain strong supplier relationships, automate supplier payouts to 200+ countries with Bill Pay, setting schedules that match your suppliers’ net terms. With 120+ countries using local payment rails, 95% of our transfers settle within a day. You’ll also never lose sight of your payments with our Expense Manangement solution, which lets you track invoices and get alerts when payments are due.
Streamline your financial operations
Frequently asked questions
What are the benefits of offering net payment terms?
Net payment terms let you offer flexible payment options, which can lead to more sales, stronger customer relationships, and healthier cash flow. Customers are more likely to make larger purchases when they have the flexibility to pay later. With a clearer picture of when you'll get paid, you can forecast and manage your cash flow better.
What are the risks of offering net payment terms?
Offering net payment terms can increase the risk of late or missed payments, especially when you’re managing staggered payment schedules. It can involve complex administrative tasks, such as tracking invoices, chasing overdue payments, and maintaining accurate financial records. The right tools and processes, such as automated reminders and payment tracking, can help you reduce these risks.
How can I manage net payment terms effectively?
Make it easy for customers to pay you by sharing payment links and offering preferred payment methods. Set clear payment terms to ensure your customers understand the due dates and any penalties for late payments. To ensure timely supplier payments, streamline the payment process with scheduled payments and automated invoicing, so that you'll never miss a deadline.
Sources
https://www.fool.com/money/research/average-credit-card-processing-fees-costs-america/
https://www.investopedia.com/average-credit-card-interest-rate-5076674
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Regina is a business finance writer at Airwallex. She creates content that simplifies complex financial topics to help businesses make strategic decisions. Leaning on her experience in the eCommerce industry, she offers a unique perspective on how businesses can navigate the payments landscape and the challenges of operating in a global, highly competitive market.