Invoice Payment Terms: Net 30, Net 60, Net 90 Explained
Payment terms are one of the most important elements of an invoice, yet they're often misunderstood. Understanding terms like "Net 30" or "Net 60" is crucial for managing cash flow, setting client expectations, and getting paid on time. This guide explains all common payment terms and helps you choose the right ones for your business.
What Are Payment Terms?
Payment terms are the conditions under which a seller expects to be paid by a buyer. They specify when payment is due and any discounts or penalties that apply. Payment terms appear on invoices and form part of the contractual agreement between you and your client.
Quick Definition
"Net" refers to the total amount due. The number after "Net" indicates how many days the buyer has to pay the invoice in full. For example, "Net 30" means payment is due within 30 days of the invoice date.
Common Payment Terms Explained
Net 30
Meaning: Payment is due within 30 days of the invoice date
Example: Invoice dated January 1st → Payment due by January 31st
Best for: Standard B2B transactions, freelance work, consulting services
Pros: Industry standard, gives clients reasonable time to pay, good for cash flow
Net 60
Meaning: Payment is due within 60 days of the invoice date
Example: Invoice dated February 1st → Payment due by April 1st
Best for: Large corporate clients, government contracts, enterprise sales
Cons: Can strain cash flow for small businesses, higher risk of late payment
Net 90
Meaning: Payment is due within 90 days of the invoice date
Example: Invoice dated March 1st → Payment due by May 30th
Best for: Large government contracts, wholesale distributors
Warning: Only offer this if you have strong cash reserves. Risky for freelancers and small businesses.
Due on Receipt / Immediate Payment
Meaning: Payment is due immediately when the invoice is received
Best for: Retail, small purchases, new clients, cash flow urgency
Also known as: "Due Upon Receipt," "Payable Immediately," "Cash on Delivery (COD)"
Net 15
Meaning: Payment is due within 15 days of the invoice date
Best for: Small projects, rush work, clients you're less familiar with
Advantage: Faster cash flow than Net 30, still gives clients some flexibility
Net 45
Meaning: Payment is due within 45 days of the invoice date
Best for: Mid-sized companies, compromise between Net 30 and Net 60
Use case: When Net 30 is too short but Net 60 impacts your cash flow
Payment Terms with Discounts
Some businesses offer early payment discounts to encourage faster payment. Here's how to read them:
2/10 Net 30
Meaning: 2% discount if paid within 10 days, otherwise full amount due in 30 days
Example:
- • Invoice total: $1,000
- • Pay within 10 days: $980 (2% discount = $20 off)
- • Pay within 30 days: $1,000 (full amount)
Benefit: Incentivizes early payment, improves cash flow
1/15 Net 45
Meaning: 1% discount if paid within 15 days, otherwise full amount due in 45 days
Common in: Manufacturing, wholesale, supplier relationships
Other Common Payment Terms
PIA (Payment in Advance)
Full payment required before work begins or goods are shipped. Common for new clients or custom orders.
50% Deposit, Balance Net 30
Half paid upfront, remaining 50% due within 30 days of project completion. Popular for freelancers and agencies.
EOM (End of Month)
Payment due at the end of the month when the invoice was issued. Example: Invoice dated Jan 15 → Due Jan 31.
Cash on Delivery (COD)
Payment must be made when goods are delivered. Common in e-commerce and physical product sales.
21 MFI (21st of Month Following Invoice)
Payment due on the 21st day of the month after the invoice date. Example: Invoice in January → Due February 21.
How to Choose the Right Payment Terms
Consider Your Cash Flow Needs
If you need money quickly to cover expenses, use shorter terms (Net 15, Net 30, or Due on Receipt).
Know Your Industry Standards
Research what competitors and peers typically offer. Net 30 is standard for most B2B services.
Factor in Client Size
Large corporations often require Net 60 or Net 90. Small businesses might pay faster with Net 15 or Net 30.
Trust Level Matters
New clients: Shorter terms or deposits. Established clients: More flexible terms.
Project Size
Large projects: Consider deposits + Net 30. Small projects: Due on Receipt or Net 15.
Recommended Payment Terms by Business Type
What Happens If Payment Terms Aren't Met?
Common Late Payment Policies:
- Late fee: Flat fee (e.g., $25) or percentage (e.g., 5% of invoice total) after due date
- Interest charges: 1-2% per month on overdue amounts
- Service suspension: Stop work until payment is received
- Collection agency: Send to collections for seriously overdue invoices
- Legal action: Small claims court for unpaid invoices (last resort)
How to Communicate Payment Terms
Clear communication prevents confusion and disputes:
- 1. In your contract or agreement before work begins
- 2. On every invoice prominently displayed near the total
- 3. In your email when sending the invoice
- 4. During initial discussions with new clients
Example Invoice Language:
Clear Payment Terms Examples:
✅ "Payment is due within 30 days of the invoice date (Net 30)."
✅ "Please remit payment by [specific date]. Late payments may incur a 2% monthly interest charge."
✅ "Payment terms: 2/10 Net 30. Take 2% discount if paid within 10 days, otherwise full amount due in 30 days."
✅ "Payment due upon receipt. Please pay immediately via bank transfer or credit card."
Automatically Apply Payment Terms
Modern invoicing software like PrestoBills calculates due dates automatically based on your chosen payment terms, ensuring consistency and eliminating errors.
PrestoBills Features:
- Set default payment terms for all invoices
- Automatic due date calculation (no manual math)
- Custom terms for different clients
- Automatic payment reminders before and after due dates
- Track overdue invoices at a glance
Key Takeaways
- Net 30 is the most common payment term for B2B transactions
- Shorter terms (Net 15, Due on Receipt) improve cash flow but may reduce client flexibility
- Longer terms (Net 60, Net 90) are often required by large corporations and government
- Early payment discounts (2/10 Net 30) can incentivize faster payment
- Always communicate payment terms clearly before starting work
- Include late payment consequences to protect yourself
- Use invoicing software to automate due date calculations
Never Miss a Payment Deadline
PrestoBills automatically calculates payment due dates, sends reminders, and tracks overdue invoices so you always know who owes what.