As a business owner, you might have seen net 60 written on invoices whenever you receive them from vendors. But have you ever wondered what it actually means? This payment term might sound a bit complex, but it’s very easy to understand.
Net 60 included on your invoice means you can make the payment anytime within 60 days instead of paying your dues immediately. So, it doesn’t matter whether you pay online or by cheque, you can take enough time before processing the payment to your vendors.
To ease the challenges of chasing payments, terms like Net 30, 60, or 90 allow vendors to collect payments while maintaining positive business relationships. Alright, nothing to worry about if you don’t know net 60 meaning and its importance because we have come up with an ultimate guide on net 60 payment terms. Not only that, we have also explained the pros and cons of net 60 terms which you might want to read. So, let’s begin with what is net 60.
What is Net 60?
Net 60 payment terms refer to the period of 60 days in which your invoice will be due. It is a long payment term that indicates 60 days in which customers should clear their pending dues. Anything after 60 days will result in late payment fees that will be added to the invoice balance. Sometimes vendors may offer a grace period before charging you late fees.
So, it’s simple when you spot net 60 on an invoice, you need to clear the outstanding amount in 60 days starting from the day you received an invoice. Vendors usually provide goods or products before issuing an invoice with net 60 terms, expecting the buyer to pay the due amount in a given timeline.
How Net 60 Payment Terms Work
Once the product or service is delivered, vendors will create a new invoice with net 60 payment terms. All they need to do is mention net 60 in an invoice before sending it to the buyer. Upon sharing an invoice, the vendor can update the account receivable sheet to track the payment and manage their business finances.
On the other hand, the buyer will get their products or goods, but they are yet to pay the money to the vendors. The buyer can pay the outstanding dues conveniently within 60 days. If not paid even after 60 days, the vendor has the right to add on late fees or a percentage of interest. With net 60 payment terms, vendors allow buyers to sell products and pay the money after earning a profit. Till then, the buyer needs to update their account payable sheet and clear the pending dues as early as possible to avoid any penalty charges.
This is how Net 60 terms help both, vendors and business owners to operate their daily activities without worrying about payment. However, remember the 60-day payment period begins right after you receive an invoice, regardless of the delivery time of products or services.
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Pros & Cons of Net 60 Payment Terms
Net 60 payment terms come with both positives and negatives for vendors and businesses alike. Let’s take a closer look at its pros and cons.
Net 60 Payment Pros
1. Payment flexibility
Net 60 Payment terms let the buyer take ample time before they make payment to the vendor.
They can pay anytime within 60 days & adjust their business finances accordingly.
2. Builds business trust
An invoice with net 60 payment terms can foster a healthy business relationship between both parties. Buyers are happy to collaborate with vendors for a long time.
3. Reduces risk of disputes
The buyer gets time to verify an invoice so that there will be no disputes later on. In case of errors, they can contact vendors & get things sorted as there is no need for immediate payment.
Net 60 Payment Cons
1. Extended wait times
Some buyers may not be ready to pay after 60 days, meaning vendors need to wait longer in order to receive their payments. In this scenario, vendors need to take follow-ups frequently.
2. Affects cash flow
With net 60 payment terms applied on invoices, vendors won’t get an immediate payment and this can negatively affect the cash flow, especially for small businesses.
3. Continuous payment tracking
Invoice once issued with net 60 payment terms requires constant tracking. You need to closely monitor your account receivables and update the sheet once payment is received.
Net 60 Payment Terms Example
Let us assume that you are running a retail clothing store and you have ordered products or goods worth $7,000 from distributors or wholesalers. So, once you receive the delivery of products, you get an invoice with net 60 payment terms on the 3rd of August. The wholesaler is demanding the total amount of $7,000 that needs to be paid within 60 days (i.e. before the 2nd of Oct). So, as a retail store owner, you need to sell goods and earn money that can be used to clear the outstanding amount of $7,000.
Some wholesalers may offer a discount on the total amount. Let’s say your wholesaler wrote 1/10 net 60 on an invoice, which means you can avail of a 1% discount by paying the full amount in the first 10 days. So, in this case, you can get a discount of $70 if paid before the 13th of August. Hence, you need to pay only $6,930 as the total outstanding amount with 1/10 net 60 payment terms. Payments made after the 13th of August will not be eligible for discounts, meaning you need to pay $7,000 before the end of the 60 days.
What is the Importance of Net 60 Payments?
Net 60 payment terms not only hold significance for small businesses but also for large-scale businesses because of enough payment time it provides to the buyer. When the vendor issues an invoice under a net 60 payment term, they offer the buyer sufficient time to earn a profit before clearing dues. Consequently, it also strengthens business relations between both parties. Here are a few reasons why you need net 60 payment terms.
1. Business opportunities
An invoice with net 60 payment terms can lead to wider business opportunities as you may find an increase in customers. Every business wants flexibility in terms of payment, and that’s what Net 60 promises. Thus, you are likely to see more opportunities, expanding your business network.
2. Maintain credit scores
The use of longer payment terms means you can see a significant rise in your business credit score. It not only helps you build an ideal credit score but also aids in maintaining it, allowing many businesses to collaborate with yours. With a boost in credit score, you can expect an increase in brand awareness as well.
3. Manage account receivables
Specifying net 60 terms on an invoice can clear up any confusion and help the buyer understand the deadline of the payment. Since your accountant already knows when to expect the payment, they may find it easy to maintain their account receivables sheet. As a result, they have a good amount of time to carefully prepare the business financial plan.
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Conclusion
Whether you offer Net 30, Net 60, or Net 90 payment terms, make sure you consider best practices to include these long payment terms. You can look for creditworthiness before collaborating with new businesses or use automation software like Moon Invoice to manage net 60 invoices on a single platform.
Either way, you go, ensure you have included the right payment terms to boost the payment process in such a way that it doesn’t affect your relationship with your clients. Besides payment terms, you can optimize your collection process using Moon Invoice as it assists you in creating professional invoices in minutes.
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FAQs
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
