Payment Terms Aren't Just Fine Print
You've probably seen "Net 30" stamped on an invoice and had a rough idea of what it means. But if you're running a small business -- especially one that sells physical products -- the payment terms you choose have a real impact on when money hits your account, how much cash you have on hand, and whether you can afford to restock inventory or pay your own bills on time.
The difference between "Due on Receipt" and "Net 30" on a $3,000 order is the difference between getting paid this week and getting paid next month. That matters when you have suppliers to pay and a business to keep running.
The Common Payment Terms, Decoded
Due on Receipt
Exactly what it sounds like: payment is due as soon as the customer receives the invoice. In practice, "immediately" usually means within 1-3 business days -- people need time to process the payment.
Best for: Small orders, new customers you haven't worked with before, one-time sales, retail or direct-to-consumer transactions. If someone orders $150 worth of product, there's no reason to give them 30 days to pay.
Downside: Some wholesale buyers or larger accounts will push back. They're used to having payment windows and may see "Due on Receipt" as inflexible.
Net 15
Payment is due 15 calendar days from the invoice date. If you invoice on March 1st, payment is due by March 16th.
Best for: A good middle ground when "Due on Receipt" feels too aggressive but Net 30 is too long. Works well for repeat customers or mid-size orders ($500-$2,000).
Downside: Some customers will still treat this like Net 30 and pay at the last possible moment. Follow up promptly if they miss the date.
Net 30
The most common B2B payment term. Payment is due 30 calendar days from the invoice date.
Best for: Wholesale accounts, recurring customers, larger orders. If you're selling to retail stores, they'll often expect Net 30 as standard. It gives them time to receive your product, sell some of it, and generate cash before paying you.
Downside: 30 days is a long time when you have bills due. If you ship $5,000 in product on Net 30 and your supplier needs payment in 15 days, you're floating that gap out of pocket.
Net 60
Payment due 60 calendar days from the invoice date. Two full months.
Best for: Almost no small businesses should offer Net 60 unless they're dealing with large retailers who have the bargaining power to demand it. If a local boutique asks for Net 60, that's a red flag.
Downside: You're giving your customer a two-month interest-free loan. For a small business with thin margins, Net 60 can mean you can't restock fast enough to keep selling.
2/10 Net 30 (Early Payment Discount)
The format is simple: the customer gets a 2% discount if they pay within 10 days. Otherwise, the full amount is due in 30 days. On a $1,000 invoice, the customer can pay $980 within 10 days or $1,000 within 30 days.
Best for: Encouraging faster payment on larger invoices. For a business placing $10,000 in monthly orders, saving $200 a month adds up. They save money, you get paid faster.
Downside: The math has to work for your margins. If you're operating on a 20% margin, giving up 2% is meaningful. Run the numbers before you offer this.
50% Upfront, 50% on Delivery
Not a standard "term" in the Net 30 sense, but very common for custom or made-to-order products. You collect half before starting work and the other half on delivery.
Best for: Custom orders, large orders from new customers, situations where you need to buy materials upfront. A furniture maker getting a $4,000 custom order should absolutely collect $2,000 before buying the wood.
Downside: Some customers do not like paying before they see the finished product. Frame it as a deposit to cover materials and production costs.
How Payment Terms Affect Your Cash Flow
Here's a scenario that plays out constantly in small product businesses:
You buy $2,000 in raw materials on Net 15 terms. You turn that into $6,000 worth of finished product and sell it on Net 30 terms. Your supplier's bill is due on Day 15. Your customer's payment doesn't arrive until Day 30 (if you're lucky).
For 15 days, you're $2,000 in the hole. This is the cash flow gap, and your payment terms are one of the biggest factors that determine how wide it gets. A few ways to shrink it:
- Collect faster than you pay. If your suppliers give you Net 30, give your customers Net 15. You get paid before your bills come due.
- Require deposits on large orders. Even 25-30% upfront helps cover your material costs.
- Offer early payment discounts. A 2% discount to get paid 20 days sooner might be worth it if it keeps you out of a cash crunch.
- Build a cash buffer. Keep 2-3 months of operating expenses in your business account so you have room to breathe.
Choosing the Right Terms for Your Business
There's no single right answer, but here's a practical framework:
Consider the order size
- Under $500: Due on Receipt or Net 15. Small orders don't justify long payment windows.
- $500 to $5,000: Net 15 or Net 30, depending on the customer relationship.
- Over $5,000: Net 30, possibly with a deposit upfront. Consider 2/10 Net 30 to incentivize faster payment.
Consider the customer
- New customer, no track record: Due on Receipt or 50% deposit. You don't know if they pay on time yet. Trust is earned.
- Repeat customer, always pays on time: Net 30 is fine. Reward reliability with flexibility.
- Customer who's been late before: Shorten terms or switch to prepayment. One late payment is a mistake. Three is a pattern.
Consider your own cash position
If you have stable cash reserves, you can afford generous terms. If you're running lean, shorter terms protect you. Don't offer Net 30 to look "professional" if it means you can't make payroll.
How to Communicate Payment Terms
State your terms before the sale, not just on the invoice:
- On your order form or quote: "Payment terms: Net 15 from invoice date. A 1.5% monthly late fee applies to overdue balances."
- In your sales conversation: "Our standard terms are Net 15. Does that work for your team?"
- On the invoice itself: Make the due date obvious. Don't hide it at the bottom. Put it near the top, in bold, next to the total amount due.
Getting agreement on terms before you ship product saves you from uncomfortable conversations later. If a customer says "We only do Net 60," you can negotiate before you've already delivered the merchandise and lost your bargaining power.
Terms Set Expectations. Follow-Through Gets You Paid.
A customer who agreed to Net 15 can still pay on Day 45. But terms give you a framework for follow-up: "This was due on the 15th per our agreement" is a much stronger conversation than "I was hoping you'd pay by now."
Whatever terms you choose, make sure your invoices are clear, your due dates are visible, and you follow up consistently when payments are late.