Net terms
Also called trade credit
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is net terms?
Net terms are payment terms that give a business customer a set number of days after the invoice date to pay the full amount, such as net 30 or net 60. Distributors extend net terms to approved customers, and manufacturers extend them to distributors.
How it works
Some terms include a discount for paying early. “2/10 net 30” means the customer may take 2% off if it pays within 10 days; otherwise the full amount is due in 30. Customers without approved credit buy COD or pay in advance instead.
Net terms example
A $5,000 invoice dated May 1 on net 30 is due May 31. On 2/10 net 30, paying by May 11 would cost $4,900.
Related terms
- Accounts receivable (AR)Accounts receivable (AR) is the money customers owe a company for goods already delivered and invoiced but not yet paid for.
- Cash on delivery (COD)Cash on delivery (COD) is a payment arrangement in which the customer pays for an order when it is delivered or picked up, not on credit terms.
- Credit limitA credit limit is the maximum unpaid balance a distributor allows a customer to carry on its account.
- Days sales outstanding (DSO)Days sales outstanding (DSO) is the average number of days a company takes to collect payment after a sale.
