Should Your Business Offer NET 30?by Stephen Peters
Deciding whether to offer NET 30 payment terms to clients when starting a business depends on various factors, including your industry, cash flow needs, and the nature of your client relationships. Here are some considerations to help you make an informed decision:
Pros of Offering NET 30 Terms:
- Offering NET 30 terms can be attractive to clients who prefer more extended payment periods. It might make your business more appealing compared to competitors who require immediate payment.
- Extending credit terms can help build trust and positive relationships with clients. It demonstrates confidence in your product or service and may encourage repeat business.
- In some industries, NET 30 terms are standard, and not offering them could put your business at a disadvantage. It's essential to understand the payment norms within your specific market.
Encouraging Larger Purchases:
- Clients may be more inclined to make larger purchases if they have the flexibility of NET 30 terms. This could lead to increased sales and revenue.
Cons and Considerations:
Cash Flow Impact:
- Offering NET 30 terms means waiting up to 30 days (or more) to receive payment. This can impact your cash flow, especially if you have ongoing expenses to cover.
- Extending credit introduces the risk of late or non-payment. It's crucial to assess the creditworthiness of your clients and establish clear credit policies.
- Managing accounts receivable, sending reminders, and chasing late payments can add administrative overhead to your business.
Terms and Conditions:
- Clearly outline your payment terms in your contracts and invoices to avoid misunderstandings. Specify any penalties for late payments and the consequences of non-compliance.
Alternative Payment Strategies:
- Consider alternative payment strategies, such as requiring a percentage of the payment upfront (e.g., a deposit), or offering discounts for early payments.
Evaluate Client Relationships:
- Assess the nature of your client relationships. If you have established trust and have a good understanding of their payment history, offering NET 30 terms might be less risky.
- Research industry standards for payment terms. Some industries commonly use longer payment cycles, while others operate on shorter cycles.
- Develop and implement clear credit policies to minimize the risk of late or non-payment. This includes credit checks for new clients and consistent follow-up on overdue invoices.
Ultimately, the decision to offer NET 30 terms should align with your business goals, financial capacity, and industry norms. It's important to strike a balance between providing flexibility to clients and maintaining a healthy cash flow for your business. If unsure, seeking advice from financial professionals or mentors with experience in your industry can be beneficial.