Payment terms are included in contracts and invoices to establish when the buyer is expected to pay for their purchase. Under “30 days payment terms”, the buyer must pay the seller within 30 days after the invoice date. Depending on the agreement, these terms might also be phrased as “net 30” or include variations such as “30 days from receipt of goods” and “30 days after the end of the month.”
Below, we’ll explain how 30 days payment terms affect cash flow, how to enforce these terms, and alternatives to consider when you invoice your clients.
What’s in this article?
- Why are 30 days payment terms so common?
- How do 30 days payment terms affect cash flow?
- When should businesses offer 30 days payment terms?
- How can businesses enforce 30 days payment terms?
- What alternatives exist to 30 days payment terms?
Why are 30 days payment terms so common?
Over time, 30-day payment terms have become the norm in many industries. They set a consistent expectation across different sectors and balance the financial needs of buyers and sellers in business transactions. Here’s why 30-day payment terms are such a popular choice:
They allow businesses time to generate revenue or manage their own cash inflows before making payments.
They demonstrate goodwill, which can strengthen long-term relationships.
These terms provide buyers with the confidence that they don’t need to pay immediately on delivery, which can encourage repeat business.
They align well with accounting systems and standards, which are often designed around monthly cycles.
These terms create less stress than shorter terms (e.g. 7-day terms, 15-day terms) and are less prone to late payments.
They come with less risk than longer terms (e.g. 60-day terms, 90-day terms).
How do 30 days payment terms affect cash flow?
For buyers and sellers, 30-day payment terms affect cash flow in different ways.
For sellers, 30-day terms are good for building relationships and boosting sales, but they require careful planning to cover expenses while sellers are waiting to get paid. These terms can make products or services more appealing, but they also delay payment. That means sellers have to wait to use that money to pay bills, buy supplies, or invest back into the business. If they need cash before payments come in, they might have to borrow money, which adds extra costs (such as interest). And there’s always a chance customers won’t pay on time, which could affect sellers’ planning.
For buyers, 30-day terms provide a helpful cushion for managing cash, but they require careful budget monitoring to avoid overspending. These terms give buyers extra time and flexibility, making it easier to manage money and pay off other expenses that might have shorter payment terms. But they can also make it seem like buyers have more money than they really do. If buyers have many payments due around the same time, 30-day terms can cause stress and drain cash reserves.
When should businesses offer 30 days payment terms?
You should offer 30-day payment terms when doing so makes sense for your operations, finances, and customer relationships. If you don’t know a customer well or their creditworthiness is questionable, 30-day terms might be risky. Similarly, if you’re struggling to pay your own bills, you might not want to extend payment terms unless it’s absolutely necessary.
Here are some situations in which 30-day payment terms might be a good choice:
To build client relationships: If you have an ongoing relationship with a client or customer and trust them to pay on time, 30-day terms can strengthen that partnership.
To stay competitive: Many industries, such as wholesale, manufacturing, and business-to-business (B2B) services, operate on 30-day payment cycles. If your competitors offer 30-day terms, you might lose business if you demand payment sooner.
To secure bigger clients: Larger clients might expect these payment terms as part of their standard purchasing agreements and these terms might be necessary to secure their business.
To give new businesses or small customers flexibility: Small or new businesses often need time to manage their budgets. These terms can make it easier for them to work with you.
To increase sales: Giving buyers 30 days to pay might make them more comfortable placing larger orders.
To attract new clients: Flexible payment options can be a selling point, especially if you’re trying to win over new customers. You could use 30-day terms strategically, such as when launching a new product or expanding into a new market.
How can businesses enforce 30 days payment terms?
To enforce 30-day payment terms, you should use customer data, incorporate clear communications and reminders, and build a culture of accountability with your clients. Here are some tips for enforcement.
Set payment terms upfront
Don’t wait until you send an invoice to talk about payment terms. Set the expectation upfront when you close the deal or sign the contract. Treat your terms as non-negotiable unless there’s a good reason to make an exception.
Encourage prompt payment
Provide perks such as discounts, faster delivery, and exclusive access to services for customers who follow your rules. For clients who pay early, consider offering a discount (e.g. 2% off if paid within 10 days). Make these incentives specific to the client, with bigger rewards for your top-paying customers or on high-volume orders.
Discourage late payment
If a client repeatedly pays late, let them know it could lead to stricter conditions, such as upfront payments, tighter credit limits, and late fees. You don’t want to damage relationships, but a small fee can encourage prompt payments. You might also need to pause shipments or delay new orders until the client pays.
Be strategic with your follow-ups
Use software to track your invoices. Implement automatic reminders, including:
A thank-you when you send the invoice
A friendly nudge a week before the due date
A polite but firm reminder on the due date
A sharper follow-up if the client misses the deadline by a few days
Customise these follow-ups. A gentle reminder might work for loyal customers who’ve never paid late, but repeat offenders will need firmer notice. For larger clients, a quick email or call from a senior team member, such as your chief financial officer (CFO) or sales leader, can get the process moving.
Customise payment terms to the client
Before you offer 30-day terms, review the client’s history and run a credit check to see if they pay other vendors on time. Consider using shorter terms (e.g. net 15) or a smaller amount of credit for new clients, then extend terms to 30 days or longer once they’ve proven they’re responsible.
For existing clients, pay attention to which clients always pay late and adjust how you work with them. They might need stricter terms or more frequent reminders. If you have an important client who’s unreliable, think of ways to work around their habits. You could ask for a partial, upfront payment or set shorter terms on larger orders. The goal is to protect yourself while keeping the relationship intact.
Track payment data
Monitor your days sales outstanding (DSO). This is how long it takes you to collect payments on average. If this number is increasing, consider tightening up your process. Double-check your invoices for errors and ensure they’re easy to understand. If something’s wrong or missing (e.g. due date, itemised charges, payment instructions), it could give clients an excuse to delay payment. See if adjusting your timing helps: some clients respond faster if they receive invoices at the start of the month or right before payday.
Use positive reinforcement
When you follow up, remind clients of the value you’ve provided. For example, you might say, “We’re glad we could deliver your order ahead of schedule – prompt payment helps us keep providing this level of service.” This keeps the tone professional while reinforcing why sticking to payment terms is important.
Have a backup plan
If a client is consistently late, consider selling their invoices to a factoring company. You’ll receive most of the money upfront, and the factoring company handles the collection. For larger risks, you can also look into trade credit insurance to protect yourself in case a client defaults entirely.
What alternatives exist to 30 days payment terms?
Although 30-day payment terms are common, there are plenty of alternatives that might suit your business or customer needs. Choosing the right terms depends on factors such as the reliability of your customers and the nature of your industry. Here are some other standard options.
Payment on receipt
Payment is due as soon as the invoice is issued or goods or services are delivered. This is a good option for smaller, one-time transactions, with new customers, or when money is tight and you need immediate funds. But it might be off-putting to larger customers who expect flexibility.
Advance payment or upfront deposits
Partial or full payment is due before work begins or goods are delivered. This is a lower-risk option that provides working capital before you start the job. It’s a good choice for high-value or custom projects where you incur costs upfront or when you work with clients who have a history of late payments. But it might deter customers, especially in industries where upfront payments are unusual.
Net 7 or net 15
Payment is due 7 or 15 days after the invoice date. This is a good option for smaller businesses or startups with tight cash flow or in industries where quicker payment cycles are the norm (e.g. freelance work, consulting). But it can be a challenge for customers who are used to longer terms.
Net 45 or net 60
Payment is due 45 or 60 days after the invoice date. This is a good option when you work with large corporations that require extended terms or for clients who consistently pay late under shorter terms, because formalising longer cycles might help align expectations. It’s a good way to accommodate large clients but can strain your cash flow.
Milestone-based payments
Payment is due in instalments tied to specific project milestones (e.g. 30% upfront, 40% at the halfway point, 30% on completion). This is a good option for long-term or high-cost projects where waiting for full payment at the end isn’t practical or whenever you want to reduce risk by tying payment to progress. It helps to balance the risk between buyer and seller but requires more invoicing and tracking.
Retainer agreements
A fixed amount is due up front to reserve your time or services. This is a good option for ongoing services such as consulting, legal, or creative work or when you want predictable income each month. It also reduces the need for frequent invoicing.
Subscription or prepaid models
Payment is due in advance for access to goods or services over a period (e.g. monthly, quarterly, annually). This is a good option for businesses with recurring services – such as software-as-a-service (SaaS), maintenance, and memberships – or when predictable income is a priority. It provides a predictable revenue stream but requires clear communication to avoid misunderstandings about ongoing charges.
Pay-as-you-go
Payment is due immediately before or after each transaction, as in a cash-and-carry model. This is a good option for smaller purchases, clients who don’t need extended terms, or when margins are thin and you can’t wait for payments. It can remove the risk of late payments and provide instant access to funds, but it might limit your customer base.
Dynamic payment terms
Payment terms vary based on the client’s payment history or order size. For example, reliable customers might get net 60, while new or inconsistent clients get net 15. This is a good option if you want to reward certain customers or offer high-volume clients extra flexibility. This kind of customisation can strengthen relationships with important clients, but it adds complexity to invoicing and requires careful management.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accuracy, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent lawyer or accountant licensed to practise in your jurisdiction for advice on your particular situation.