Net terms tell a customer how many days it has to pay an invoice in full. "Net 30" means payment of the full amount is due within 30 days; "net 60" and "net 90" extend that window.
How it works in factoring
Net terms are a form of trade credit: the seller is effectively financing the customer for the length of the term. That is exactly the gap factoring is designed to fill.
Points to understand:
- Start date: most net terms run from the invoice date, but some contracts run from delivery or receipt of invoice. "Net 30 EOM" usually means 30 days after the end of the month.
- Large-customer terms: big retailers, manufacturers and government agencies may set long net terms in their vendor agreements, and small suppliers often have limited ability to negotiate.
- Actual versus stated: customers do not always pay on the due date. Factors look at actual payment behavior.
Illustrative example: A supplier delivers $40,000 of product on net 60 terms. Without financing, the cash arrives about two months later. Factoring the invoice at delivery turns most of that $40,000 into cash within days, for a fee that depends partly on how long the customer takes.
What to check
- Print net terms clearly on every invoice
- Compare your terms with the payment habits of each customer
- When a customer asks for longer terms, estimate the added factoring cost before agreeing
Net terms help win business, but each extra day of credit has a real cost, whether paid in factoring fees or in your own tied-up cash.