Imagine buying inventory in July and paying for it in December. That’s the power of net 180 payment terms. They help you and your customers manage cash flow and breathe easier.

But extended payment terms come with risks. You need strong credit, solid client relationships, and a strategic approach. Here’s everything you need to know, including the pros and cons of different terms and how to decide if net 180 is worth it for you. 

What Are Net Payment Terms?

Net payment terms specify when a payment for goods or services is due. “Net” refers to the amount payable after any discounts or deductions. The total price starts at 100%, and discounts and deductions lower the amount. An invoice might list the original price and show discounts for volume and early payment. 

“Net” followed by a number, like 30 or 90, means the payment is due in that number of days. For example, for a net 60 invoice, the billing cycle is 60 days. The customer has 60 days to pay.

What Does Net 180 mean?

With net 180 payment terms, the payee has 180 days after delivery to pay for the goods. This is six months after they receive the invoice.

See it as a grace period for your customer. They get the items immediately without paying upfront, which helps if they need time to sell them and make money to pay the supplier.

These long payment terms are standard in big-ticket deals or seasonal businesses. For example, if you’re buying inventory for the holiday rush in September, you might make money in December. 

The seller is trusting the buyer a lot here. It’s waiting half a year to get paid, which is rare in most business deals. Payment terms like net 30 are much shorter and often easier to handle because most sellers want their money sooner.

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What Does Net 30/60/90 Mean?

For net 30, 60, and 90, the number reveals how long a customer has to pay—30, 60, or 90 days.

Payment terms aren’t random. They depend on several factors, including the business’s standards and the industry. They also depend on who the business is selling to and what is being purchased. Factors include:

• Credit score
• Business relationship history
• Company financial statements
• Purchase size
• Industry norms

The better a buyer’s financial reputation, the more flexible their terms. That’s why it’s a good idea for buyers to negotiate. They might get better terms if they’re a reliable customer with a strong track record.

Some industries are more flexible than others. Construction might use longer terms. Tech might want faster payment. For example, a marketing agency billing a client for monthly services might use net 30 because it matches the business cycle.

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Advantages of Using Net 180 terms

If you’re unsure whether to offer net 180 terms to your clients or customers, here are the key advantages:

1. More Contracts

Offering net terms can make your proposal stand out if a client is unsure about paying upfront. For example, a construction company might choose you over a competitor if you offer net 180 terms, allowing them time to get funding for their project.

2. Cash Flow Predictability

Net terms help you organize your finances. You clearly know when money will enter and exit your accounts. This clarity helps you budget more precisely, invest in growth opportunities, and steer clear of cash shortages. 

3. Stronger Client Relationships

Flexible payment terms show you understand your client’s challenges and trust them to pay when necessary. When you offer net 180 payment terms, you say, “I trust you. We’re partners.” This relationship-building can lead to repeat customers and referrals.

 4. More Sales

More straightforward payment terms can dramatically increase sales. Customers might be more likely to buy when they don’t feel financial pressure. For example, a software company might see sales jump 30% after offering net 180 terms to small businesses.

5. Competitive Advantage

Not every business offers flexible payment terms. Taking this approach makes you stand out. You become the vendor that makes doing business easy. 

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Disadvantages of Using Net 180 Terms

Net payment terms might seem appealing, but they can lead to financial problems for your business. Here’s what you should know:

1. Decreased Financial Velocity

Waiting six months for payment slows down your cash flow. You can’t reinvest your money or grow your business when it’s tied up in accounts receivable. 

2. High Risk

Long payment terms mean more chances of something going wrong. A client might change leadership, face financial troubles, or go bankrupt before paying. The longer the term, the more uncertainty.

3. Working Capital Strain

Extended terms can crush your cash flow. You deliver goods now but won’t see money for half a year. You need cash reserves to cover operations, pay employees, and buy inventory. Smaller businesses can easily face financial difficulties with extended payment terms.

4. Discount and Opportunity Cost

Waiting six months for payment means missing potential investments or growth opportunities. That money could fund new equipment, marketing, or hiring. Every day you wait, you’re not maximizing your business’s potential.

5. Administrative Burden

Tracking long-term invoices is complex. You might spend more time managing paperwork, following up on payments, and monitoring aging receivables. This extra work can reduce your profits and team productivity.

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5 Tips To Select the Right Payment Terms for Your Business

Picking payment terms isn’t a one-size-fits-all decision. It’s about balancing your financial needs and your client’s comfort. Here’s how to choose:

1. Understand Your Cash Flow

Know precisely how money moves through your business. Map out your expenses, revenue cycles, and financial cushion. If possible, stick to shorter terms like net 30 or net 60. Waiting six months could strain your operations.

2. Research Your Industry Standards

Different industries have different norms. Construction might use net 90, while freelancers in writing or design often use net 30 or net 15. Talk to peers, check trade publications, and see what successful companies in your sector are doing. Don’t reinvent the wheel. It could confuse customers.

 3. Know Your Client

Every client is different. A startup might need more flexible terms, while a Fortune 500 company might prefer strict conditions. Look at their financial health, payment history, and business cycle. Your terms should make doing business easy for both of you.

4. Calculate Your Risk Tolerance

Decide how much uncertainty you can handle. Use shorter payment terms to safeguard your interests if there’s a chance a client could fail to pay. Always conduct a credit check and establish terms that align with your comfort level.

5. Be Willing To Negotiate

Payment terms can be flexible. Talk to your customers. You might offer a small discount for early payment or break a large invoice into smaller installments. Being flexible can help you gain loyal customers.

Make It Easy With Invoice Simple’s Software

Your business deserves smooth, stress-free payments. Stop juggling paperwork and start getting money in your account faster. 

Invoice Simple makes getting paid easier. Send digital invoices by email or text, share a quick link, or let customers scan a QR code and pay instantly.