Running a small business is by no means easy as you have a lot of responsibilities on your shoulders. Undoubtedly, you would have mastered the art of managing multiple business tasks. But, dealing with late payments is a completely new challenge. You may find half of your invoices unpaid for more than a month. As a business owner, you deserve to get paid as soon as possible rather than chasing the payment.
Therefore, specifying net 90 payment terms in an invoice could be your answer to a long-term invoicing problem. It can help you settle dues early and increase the cash flow. Worry not if you don’t know what does net 90 mean, we have a comprehensive guide on net 90 payment terms with examples to help you minimize payment delays.
What is Net 90?
Net 90 indicates the deadline to complete the payment for an invoice you received from the supplier or vendor. Net 90 refers to an invoice that should be paid within 90 days to avoid late payment fees.
While it is the most used payment term, you may also see businesses specifying net 30 or net 60 as payment terms on invoices. The use of payment terms may vary depending on the industry you serve. Failing to clear dues within 90 days may not only lead to penalties but also legal consequences, as the matter could be referred to a collection agency.
How Net 90 Payment Terms Work
Once you receive an invoice, check if there is any mention of credit terms such as Net 30, 60, or 90. If you read Net 90 in your invoice that means you have 90 days to clear the payment starting from the day you received an invoice. Let’s understand how it works:
Net 90 terms are usually included by the supplier or vendor in an invoice to inform businesses of the deadline by which they can clear their dues without incurring any late fees. Soon after issuing an invoice, suppliers update their accounts receivable sheet because the money hasn’t been received yet. Similarly, businesses update their account payable sheet as they need to pay outstanding amounts to the supplier.
If a business owner makes the payment within 90 days, then they won’t incur any additional fees or interest. Some vendors or suppliers may offer a discount to those who pay before the passing of the due date. However, if a business owner fails to clear this outstanding amount in 90 days, then late fees will be added, resulting in an increase of the due amount. Late fees are applicable as mentioned in the credit terms.
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Net 90 Payment Terms Example
Let’s imagine you run a retail store where you collaborate with multiple suppliers. You received an invoice from a wholesale supplier with net 90 terms. This means you need to complete the payment in 90 days or you might incur late fees. Sometimes you may see 1/10 net 90 or 1/20 net 90 on an invoice, which doesn’t change the timeline to clear the payment but offers 1% as a discount on the total due amount if paid during a specific period. Therefore, you can avail a 1% discount if the invoice is paid within the first 10 or 20 days from the date the invoice was issued.
What is the Importance of Net 90?
Net 90 terms are important for your businesses as well as vendors or suppliers. Businesses can have an extended time of 90 days, meaning they can sell their inventory and then make the payments. They will have sufficient time to pay their dues by a given deadline and get rid of interest charges in the form of penalties. Net 90 terms are usually provided to companies with good credit scores. Businesses may receive longer payment terms if they are serving industries in which such payment terms are common.
On the other hand, it is also important to vendors as they don’t need to chase the payments and are only required to update their accounts receivable sheet. Notably, vendors should offer net 90 terms to reputed companies to track payments and dodge unpaid invoices that might otherwise impact their bottom lines.
So, net 90 terms can benefit both businesses and vendors if they have an efficient accounting process.
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Conclusion
Net 90 payment terms play a crucial role in improving business cash flows. As your business grows, you can’t afford to chase payments from every customer. So, including net 90 payment terms on the invoice offers sufficient time for clients to sell their products and complete the payment on time. You can even boost the collection process by offering discounts for those ready to pay early.
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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.
