You receive an invoice from a vendor, and it has the phrase ‘net 60’ included in the payment terms.
Maybe you’ve seen this before but are unsure what it really means for your business, like when the payment is due and whether there’s a “catch”.
Rather than requiring immediate payment, the vendor is giving you some extra time to collect and send the appropriate funds.
Below, we’ll discuss the specifics of net 60, the pros and cons of long payment terms, and what it might look like in a real-world business scenario.
What does net 60 mean?
Net 60 is a payment term that describes the length of time a customer has to pay an invoice.
When a seller applies net 60 to an invoice, it means the deadline for paying it is 60 calendar days after the customer receives it.
You can think of it as a type of short-term credit the seller gives a buyer, delivering goods or services upfront with the expectation that they will remit payment within the designated time frame.
As we’ll discuss in further detail below, net 60 payment terms are often favored by buyers, allowing them to time payment when it’s favorable for their cash flows, as long as it’s made within 60 days.
However, taking full advantage of net 60 payment terms may cause you to forgo early payment discounts, which you’ll need to evaluate on a case-by-case basis to ensure you’re making the best financial decision possible.
How does net 60 work?
It’s easy for sellers to implement net 60 payment terms. Typically, they just need to include the phrase ‘net 60’ on the invoice before sending it to the customer.
The seller will deliver the invoice as usual to the customer after the goods or services have been delivered. When reviewing the payment terms, the customer will realize they have 60 days to make the payment and, ideally, complete it within this time frame.
It’s important to clarify when the 60 days begin. The standard is that the payment deadline is 60 days after the invoice is sent to the customer, not 60 days after the goods or services have been delivered.
If the customer does not send payment within 60 days, the business may charge interest and late fees or escalate the issue with legal action to recoup the payment.
Pros and cons of long payment terms
While it may seem that net 60 offers plenty of benefits for customers, there are also advantages for sellers.
On the other hand, longer payment terms like net 60 can pose issues for either party, as we’ll discuss below.
Pros of long payment terms
Of course, customers may enjoy net 60 payment terms because it gives them a larger window to send payment for a purchase.
If they don’t immediately have the cash to pay an invoice or would like to prolong payment to avoid immediate cash flow issues, it gives them the flexibility to do so.
For sellers, offering net 60 helps support relationships with customers. It shows that they’re willing to be flexible, giving them ample time to approve and process the invoice and send payment.
This can create a sense of trust between both parties, showing the customer that the seller sees them as a dependable partner who will make good on the payment.
Cons of long payment terms
Despite the benefits, there are some potential disadvantages of net 60 worth mentioning.
For starters, sellers just starting to work with a new customer don’t have a payment history to prove their reliability. It can be a risk to offer such a lengthy payment term in these circumstances.
In addition, certain businesses that are just starting out may need the cash to support operations and may not have the flexibility to prolong payment by up to 60 days.
And, as we mentioned earlier, sellers may offer early payment discounts, which customers won’t be able to take advantage of if they wait the full 60 days to send payment for an invoice.
Net 60 payment term examples
To understand the implications of net 60 payment terms, here are some real-life examples to illustrate how this works:
Wholesale net 60
Let’s say a small retailer orders $12,000 worth of inventory from a wholesaler under net 60 payment terms.
So, after the retailer receives the shipment, the wholesaler sends the invoice, and the retailer has 60 days to pay the full $12,000.
If the retailer receives the invoice on June 1, they will have until August 1 to settle the payment.
During this time, the retailer will be able to sell the merchandise and generate revenue to help them pay off the invoice by the due date.
1/10 net 60
Again, some sellers will offer a discount if customers pay early and don’t wait the full 60 days to send payment.
This might be written like ‘1/10 net 60’, which is shorthand for ‘there’s a 1% discount if paid within ten days; otherwise, full payment is due within 60 days’.
The discount is used to incentivize quicker invoice payments, even though the official due date isn’t until 60 days after the invoice receipt.
Using the above example, let’s say the wholesaler offers 1/10 net 60 payment terms instead.
If the retailer sends payment by June 10, they will receive a 1% discount. So, if they do so on June 6, they will receive a $120 discount, allowing them to send payment of $11,880 to the wholesaler.
If they pay anytime between June 11 and August 1, the retailer owes the full invoice amount.
Net 30 vs net 60
There are other common payment terms aside from net 60 — including net 30. Net 30 payment terms tend to be the default in the business world, though certainly not required.
As you may be able to gather, net 30 terms mean the payment is due within 30 days of receipt.
Net 30 payment terms work on the same concept as net 60, just with a shorter timeline to remit payment.
Thus, the biggest difference between net 30 and net 60 is the length of time the customer has to pay an invoice.
Compared to net 60, net 30 may be more favorable to vendors, meaning they’ll receive payment quicker, while customers might prefer net 60, as it gives them more time and flexibility to complete the payment.
How invoice factoring can help with long-term payments
Business owners may consider offering longer payment terms, like net 60, to attract more customers.
However, it can put them in a precarious situation where they cannot pay their own bills because of all the outstanding invoices they’re owed.
One solution is to use invoice factoring, which is a financing option that allows business owners to offer customers long payment terms, while still being able to access the capital they need to meet their obligations in the short-term.
With this arrangement, the business sells outstanding invoices to a third party at a discount in exchange for a cash advance.
This isn’t the right fit for every business, as the immediate access to cash is offset by a discounted rate. However, it is an option worth considering if you’d like the best of both worlds.
Streamline invoice payments with BILL
No matter what net terms a vendor offers you — 30, 60, or even 90 — ensuring on-time payments supports vendor relationships and shows that you’re a reliable partner.
While it can be tricky to time payments and manage discount opportunities as your business grows, using an automated accounts payable system, like BILL, makes the process much more straightforward.
Your suppliers and vendors can send digital copies of invoices via email, then BILL will automatically route the appropriate approvals and payments according to your policies and the sellers’ terms.
To see how BILL can help you manage net payment terms and consistently hit payment due dates, sign up for a risk-free trial today.
