New to Business - Net15, Net30?

[Anonymous]

So I'm fairly new to business and most of our clients pay by check up front. But we've received new vendor paperwork from 2 businesss that have a payment Question on them that says Net 15. Net 30.

We're wondering what exactly it means? I know the basics from googling it. That it means a client has 10,15,30 days to pay you and if they pay sooner you should offer a discount. How exactly does the Net15 or Net30 work though?

Our prices are already very discounted because we're a new business undercutting the competition so can't really go much lower. Also, the businesss that gave us them aren't large enough to warrant any special discounts they're smaller clients. Any advice will help thanks!

[Anonymous]

Bump

[-Cal-]

From my experience, it usually means that they will take up to 15 or 30 days from the day of the invoice to pay you. Your agreement will either be Net15 or Net30 (not both). In some (rare) cases, companies will pay up to Net90.

Some companies will allow vendors to "accelerate" their payments for a small fee which may appear to be extending a discount from your perspective, but this is usually a fee charged by a 3rd party factoring company that they have a relationship with. 

[Anonymous]

Is there a contract you sign to receive net30 payments? So you don't get payments directly from the person/business you're selling to?

[-Cal-]

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@Anonymous wrote:
Is there a contract you sign to receive net30 payments? So you don't get payments directly from the person/business you're selling to?

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The contract will state the payment terms, which can be Net-30. For example, it will state "Outstanding invoices are paid on a Net-30 schedule". It doesn't dictate who the payments come from. 

That basically means the amount on the invoice is expected to be paid in full to you 30 days after the goods are delivered or the services you provide are completed. Net-X is effectively a form of a trade credit. You're extending them credit for the goods/services amounting to whatever you invoice them for the term of 15/30/45//60 days based on what is written in your contract/agreement. 

[Anonymous]

I've done a lot of reading on it. A big red flag for me is that they might not pay.

Here's an example situation I read that's happened to a lot of people:

A supplier sends $2,000 worth of merchandise to a small business on net30 terms. The business does not make enough sales, or they don't get paid by one of their contracts. Because they didn't have the sales or get paid they can't pay you. At that point the merchandise is gone, you have an option to take them to court wasting time and money.

Which is why for us we ask for a check from the business. Seems much simpler what do you think?

[-Cal-]

Yes, that is a big risk. It sounds like you offer goods/products? Depending on your risk assessment of the business you might want to establish different terms.

My business offers professional services, to mitigate this risk our finance team runs a form of a credit check on potential clients to determine what their billing terms will be. We also have a collections/penalty process for those who do not pay (thankfully we don't have to enforce this). Some of our clients pay up front and some we will let them pay on their schedule. We service a few Fortune 100 companies and they tend to take the longest to pay their bills. 

Edit: Our most common arrangement is Net-30, we also pay all of our vendors on a Net-30 schedule. 

[Anonymous]

Yes mainly we provide businesss with large quantities of cell phone accessories. So we would prefer payment up front. But some have said they'd like to work on Net30 terms, so I'm trying to see if it's a viable option for us. We aren't a huge company we are fairly small but hoping to get bigger in time.

It sounds like your business is much larger so Net30 works for your needs.