What are net terms on an invoice?

Net terms on an invoice define the payment window the buyer has agreed to. Net 30 means the full amount is due 30 days from the invoice date. Net 60 gives 60 days, and net 90 gives 90. These are conventions, not laws, and they vary by industry and by the leverage balance between buyer and seller. Many small businesses accept whatever terms the buyer requests without calculating the working-capital cost of doing so.

The cash-flow reality of net terms is that every day of terms the seller extends is a day of interest-free credit the buyer receives. A seller with net 60 terms on $200,000 of annual revenue is continuously carrying roughly $33,000 of receivables — two months of revenue that has been earned but not collected. The implicit financing cost of that extension depends on the seller's cost of capital, but for most small businesses it runs several thousand dollars per year in working capital that is simply unavailable.

Extended terms need to be priced in or actively managed. When a large buyer insists on net 90 terms, the right response is either to price the extended terms into the contract price, to require a deposit upfront, or to follow up aggressively the day the balance becomes due. Net 90 terms with no AR monitoring are effectively open-ended terms, which is a very different and much riskier thing.