Think about whether the customer will understand the terms or if some additional explanation is needed. Our best expert advice on how to grow your business — from attracting new customers to keeping existing customers happy and having the capital to do it. Small businesses like website-building and web design may undertake a large invoice for a sizable project. To remedy the risk, they will likely ask for a deposit prior to starting. Payment terms, the contractual lighthouse in the sea of commerce, are far from mere words. They are the orchestrators of when and how a seller expects remuneration, and their influence extends far beyond the ink on paper.

There’s another solid perk you may be able to enjoy when you open vendor accounts. Many vendors don’t require personal credit checks or personal guarantees. It’s net 60 payment terms often easier to qualify for this type of short term financing, plus reduce your personal liability while you’re trying to establish business credit history.

Disadvantages of offering net 30/60/90 terms

In this scenario, the buyer can take advantage of a 1% discount if they pay the invoice within 10 days of the 60-day period. Note that an early payment discount like this isn’t exclusive to net 60, for example this kind of option exists for Net 30 as well (1/10 net 30). The amount https://www.bookstime.com/articles/retained-earnings-statement-example should provide motivation but not potentially damage a long-term relationship. You’ll also have the option of compounding interest on a daily or monthly basis. If you’re using accounting software, it will handle the math for you and make the process of adding interest simpler.

This is true only if the vendor reports payments to business credit bureaus. In fact, even if your business is new, you might be able to qualify for vendor accounts. These accounts are often easier to qualify for than small business loans because limits are lower (at least to start) and suppliers want your business. Net terms provide a grace period from the invoice date for your customers to pay and although it has benefits, implementing terms will lead to a longer repayment cycle. Strategically preparing for this longer cash flow cycle will help maintain strong working capital and decrease DSO.

Services

Including more options will make it easier to pay, hopefully speeding up payment. Net terms can also help you build stronger client relationships over time. Net terms are often helpful to B2B companies that are also trying to manage and smooth their cash flow. When you make your clients’ lives easy, they’re more likely to continue doing business with you—and may even recommend your business to other customers.