What does n/30 mean in accounting?

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  1. Introduction
  2. Why do businesses use n/30 payment terms?
  3. How do n/30 terms affect cash flow?
  4. What are common alternatives to n/30?
  5. How should businesses enforce n/30 terms?
    1. Make sure everyone is aligned
    2. Send invoices that are easy to understand
    3. Follow up before payments are due
    4. Reward customers for early payments
    5. Monitor and change approach as needed
    6. Be firm but fair
    7. Know when to push and when to be accommodating
    8. Use tools that do the heavy lifting
    9. Escalate when necessary
    10. Learn from every situation

In accounting, “n/30” (net 30) is a payment term that indicates the full invoice amount is due within 30 days of the invoice date. N/30 communicates your payment expectations, and it’s distinct from terms such as 2/10, which is when you offer clients a discount (i.e. 2%) for early payment within 10 days.

The enforcement of payment terms such as n/30 can determine the success of your business. A 2023 report found that 26% of small and medium-sized businesses (SMBs) in the UK that experienced late payments were unable to reinvest in their business, and 20% were unable to accomplish their business goals.

Below, we’ll explain what to know about net 30, including why businesses use it, how it shapes cash flow, and how businesses can incentivise on-time payments.

What’s in this article?

  • Why do businesses use n/30 payment terms?
  • How do n/30 terms impact cash flow?
  • What are common alternatives to n/30?
  • How should businesses enforce n/30 terms?

Why do businesses use n/30 payment terms?

Businesses use n/30 payment terms to strike the right balance between being fair to their customers and managing their cash flow. Here’s why this payment term works for both parties.

  • It gives customers flexibility: Customers often appreciate having 30 days to pay. It can give them time to sell the products they bought or generate cash from their own operations. This flexibility can also encourage repeat business and help build relationships.

  • It’s polite but practical: Thirty days is long enough to avoid unnecessary pressure on customers, while also not leaving sellers waiting too long to be paid.

  • It helps sellers with financial planning: Knowing that most payments will arrive within 30 days allows businesses to plan for expenses, payroll, or inventory restocking with more confidence.

  • It’s a standard business practice: N/30 is widely recognised as the default payment term across industries. It’s familiar, easy to agree on, and doesn’t require renegotiation on every invoice.

  • It shows trust without taking on too much risk: Extending 30-day terms demonstrates trust but doesn’t leave the seller over-exposed. The relatively short amount of time until payment is due makes it a safer alternative than more lenient terms such as n/60, in which customers have 60 days to pay.

How do n/30 terms affect cash flow?

Depending on how you manage payments, n/30 terms can have a big impact on the money you have on hand.

When it comes to cash flow, here are some benefits associated with n/30:

  • Your money arrives within 30 days, ideally. That predictability can make it easier to plan for supplier payments, payroll, or investments in new opportunities.

  • It can encourage loyalty and repeat business. Over time, steady, mutually beneficial relationships can contribute to a healthy cash flow.

N/30 also comes with certain drawbacks. For example:

  • It can create gaps in cash flow. The 30-day time frame in payment can cause stressful delays between money in and money out. Rent, salaries, and supplier payments are often due before n/30 invoices.

  • Reinvestment might be limited. Having your money tied up in 30-day payment windows can restrict how much you can invest back into your business or your ability to handle unexpected expenses.

  • Not all customers will adhere to the deadline. When payments come late – or remain unpaid – it can disrupt your financial planning.

To make the most of n/30’s pros and cons, proactively build your cash reserves to handle expenses as you wait for invoices to be paid, and consider offering n/30 only to reliable customers to reduce the risk of late payments. In the interest of encouraging early payments, you can also provide a small discount for paying early (such as 2/10, n/30) to speed up billing cycles.

What are common alternatives to n/30?

Although n/30 is widely used, many businesses use other terms that suit their specific needs, industries, and customer relationships. Each option has its own benefits and risks. Below are some common alternatives to n/30.

  • Prepayment: Customers pay the full amount due before the goods or services are delivered. This eliminates cash flow delays and reduces the risk you take on, but it can deter potential customers who value more flexible payment terms or are unfamiliar with your business’s work. This option is typically used in high-risk industries, for custom orders, or with new client relationships.

  • Cash on delivery (COD): Payment is made at the time of delivery. This reduces delays and the risk of non-payment, but it can complicate logistics – especially for large or recurring orders. This method is typically used in retail, logistics, and industries with small-ticket items.

  • Net X: This is a variation on the standard net payment terms, where “X” represents the number of days before payment is due. Net X provides the flexibility to adjust in accordance with industry norms or customer needs. For example, n/60 or n/90 gives buyers more time to pay; however, it can create cash flow issues. These custom terms are often used in industries with long sales cycles, large contracts, or high customer trust.

  • Early payment discounts: Terms such as 2/10, n/30 give customers a 2% discount if they pay in full within 10 days. Otherwise, the full amount is due in 30 days. This option encourages faster payment while still giving customers some flexibility, but it can affect revenue if the discount is offered and used too widely. This method is typically used in B2B relationships with large orders or frequent transactions.

  • Milestone payments: Payments are split into stages based on project milestones or deliverables. This reduces financial risk by tying payment to specific benchmarks, but it can complicate the way businesses manage and track milestones. This option is typically used in construction, software development, or large-scale custom projects.

  • Subscription or retainer: Customers pay a predetermined amount on a recurring basis (e.g. monthly or annually). This cadence provides predictable, recurring revenue for the seller, but it isn’t suitable for industries that rely on one-off or variable payments. This method is typically used in software-as-a-service (SaaS) companies, consulting, or maintenance services.

  • Letter of Credit (LC): A bank guarantees the buyer’s payment, so funds are available when the terms are met. This reduces risk for international trade or high-value transactions, but it requires the buyer’s bank’s involvement, which can add fees and administrative work for both parties. This option is typically used in import and export and large capital projects.

  • Open account: Customers receive goods or services without paying upfront, and they settle the balance periodically (e.g. monthly). This simplifies transactions for your customers, but it can be high risk if the customer fails to pay. This method is typically used in established business relationships.

How should businesses enforce n/30 terms?

Enforcing n/30 payment terms means ensuring customers know your expectations, and following up when payments are late. Here’s some guidance on how to enforce payment terms.

Make sure everyone is aligned

Don’t bury your payment terms in the fine print. Be transparent by spelling out n/30 terms in contracts, proposals, and invoices. Ideally, introduce it into the conversation when you’re onboarding a new client. You could say: “Our payment terms are 30 days, so you’ll have plenty of time to settle up. Let me know if there’s ever an issue.”

Send invoices that are easy to understand

Your invoices should be formal but simple enough for all parties to understand. Include a clear due date and the term n/30 to avoid ambiguity. The goal is to make it as easy as possible for your customer to pay you, so consider adding a link to pay in the invoice.

Follow up before payments are due

Don’t wait until day 31 to follow up. A week before the due date, send a friendly nudge. For example: “Hi, just a quick reminder that Invoice 1234 is due next week. Please get in touch if you need anything from me to process it on time, or if you have any questions.”

Reward customers for early payments

Incentivise early payments with terms such as 2/10, n/30. You might send a message such as, “We have a 2% discount for payments made within 10 days – just a little thank you for paying early!”

Monitor and change approach as needed

Follow up promptly when payments are late, but keep it friendly. A note such as, “Hi, I noticed Invoice 1234 hasn’t been paid yet. Just checking in to see if there are any issues on your end.”

If the customer is unresponsive and payment still hasn’t arrived, you can start escalating your approach with a message such as: “This is a courtesy reminder that Invoice 1234 is overdue. As agreed, payment was due on [date]. Please process payment by [new date] to avoid late fees.”

Be firm but fair

Late fees can get results, but use them with caution. Tell clients your late fee policy upfront to avoid surprises. For example: “Invoices paid after the due date will incur a 1.5% late fee per month.”

Know when to push and when to be accommodating

If clients’ payments are late, they might be struggling. If the customer has a solid track record, consider providing some flexibility. Try opening the conversation with a sympathetic message and an offer to construct a payment plan. However, if a client is consistently late, stop extending n/30. Insist on prepayment or shorter terms for future work.

Use tools that do the heavy lifting

Software such as Stripe Invoicing can send automatic reminders and track payments, so you can see at a glance what a client owes and when a payment is due.

Escalate when necessary

If polite reminders and late fees don’t work, you might need to hire a collection agency or take legal action. But be strategic: if the unpaid invoice is small, the cost of chasing it might not be worth your time and resources.

Learn from every situation

If payments are consistently late, think critically about your business, and ask these questions:

  • Are we working with the wrong clients?

  • Do we need stricter credit checks before offering n/30 terms?

  • Should we tighten up our invoicing process?

Use every late payment as a chance to adjust your system.

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.

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