The payment terms on an invoice tell your clients when they’re expected to pay. As the business owner, you have the freedom to set the payment terms that best fit your needs. While you can make your invoices due upon receipt, it’s often a more customer-friendly option to give clients a reasonable amount of time to pay. The net-days approach is one way to set due dates for the invoices you send to customers.
Net 30 Payment Terms
Net 30 is a popular payment term option when invoicing clients. It means that the client needs to pay the invoice in full within 30 days of the invoice date. Say you send an invoice to your client on September 20. If you set the payment terms as net 30, the due date is October 20. If the client doesn’t pay by that due date, the bill is past due.
Net 30 gives the client plenty of time to make the payment, which is helpful when you’re working with businesses as your clients, as getting payments approved can take time. When your customers pay on time, you don’t have to wait more than a month from the time you invoice, which helps to keep cash flowing into your business. This option also gives all customers an equal amount of time to pay for consistency.
2/10 Net 30 Payment Terms
If you want to improve your cash flow, you can offer early payment discount terms to clients to encourage them to pay early. That’s where 2/10 net 30 comes into play. It shows that the client needs to pay the invoice in full within 30 days of the invoice date, so the maximum due date doesn’t change. But it also includes a 2% discount if the client pays the invoice in full within 10 days of the invoice date. The 2 represents the discount percentage, while the 10 indicates the number of days in which the payment needs to be received to receive that discount. The net 30 at the end of this payment term shows that the customer still has 30 days to pay if they need it. This type of payment term gives your customers more flexibility to decide whether to pay faster to get a discount or take more time to pay.
Imagine you bill your client with 2/10 net 30 payment terms. If the invoice goes out on September 20, the client has until September 30 to pay in full to get the 2% discount. Or, they can wait until October 30 to pay. Offering a discount does decrease the amount you receive, but it helps speed up the payment time to improve cash flow.
Choosing payment terms for your small business often comes down to your financial situation. Shorter terms or incentives for paying invoices early can boost cash flow when you need it most. Using QuickBooks Online makes it easier to customise your payment terms and send invoices immediately. 4.3 million customers use QuickBooks. Join them today to help your business thrive for free.