Net Terms
Brief Definition
What are Net Terms?
Net terms are trade credit agreements that specify the number of days a buyer has to pay an invoice after the goods or services have been delivered. The term 'net' refers to the total amount due, and the number indicates the payment window. Net 30 means payment due in 30 days, Net 60 in 60 days, and so on.
Why Net Terms Exist
Net terms exist because B2B buyers often need to receive and sell goods (or generate revenue from services) before they can afford to pay their suppliers. By extending net terms, sellers make it easier for buyers to do business with them — which strengthens relationships and drives repeat orders.
The Risk of Traditional Net Terms
When a seller extends net terms directly, they're essentially acting as a lender — and taking on all the associated risk. If the buyer pays late or defaults, the seller absorbs the loss. This is why many merchants now use third-party financing providers who manage the credit risk, collections, and cash flow — so the merchant gets paid immediately and the buyer still gets their terms.
Key Takeaways
- Net terms define how many days a buyer has to pay an invoice
- They are foundational to B2B trade and supplier relationships
- Extending terms directly creates credit and cash flow risk for sellers
- Third-party providers can manage net terms risk for merchants