Accounting is boring. And so is the accounting vocabulary. But without it there would be chaos.
Although we love our accountant the way he speaks gives me a headache sometimes…So if you are troubled with the accounting “Net terms” we are going to explain in plain language what various payment terms mean and how this one simple mistake is delaying your cash flow.
Net 7/30/60/90 – What is it and Why does it matter?
Net “random number” is an invoicing payment term which specifies how much time there is to make a payment. “Net” refers to the amount due and the numbers refer to the number of days available to make a payment after the date the invoice had been created. The X day period includes the time products spend in transit and also counts weekends and holidays.
Pro tip: Make sure to establish that the 30 days (or any other payment period) start when the invoice is created! Some buyers might assume that transit is not included or they time it from when the invoice is received. That’s why it’s important to send invoices online.
You'll encounter variations like net 7, net 10, net 15, net 45, net 60, net 90, and more. The choice of number is yours; there are no hard rules.
In practical terms, receiving an invoice with "net 90" for a $10,000 bill means you've got 90 days to make the most of that $10,000. You pay the invoice at the end, hopefully with profits in hand.
Now, envision a scenario with "net 7." The advantages of a higher number become evident. Large companies often negotiate for "net 90" not because they can't pay but to maximize quarterly profits.
Deciphering Invoice Lingo
Tips for Invoice Terms
Understanding and using invoice payment terms effectively can significantly impact your cash flow and overall financial stability in business.
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