What Are Net 90 Payment Terms & How Do They Affect a Business?

Net 90 payment terms represent an agreement between a buyer and a seller, indicating that the full invoice amount is due 90 calendar days after the invoice date. This arrangement provides interest-free credit to the buyer, allowing an extended period to settle their financial obligation. These terms are outlined on invoices and are common in business-to-business (B2B) transactions.

Understanding Net 90 Payment Terms

The “net” in Net 90 signifies that the total invoice amount is due within the specified timeframe. The 90-day period typically begins from the invoice date, not necessarily when goods are received or services rendered. For example, if an invoice is dated January 1 with Net 90 terms, payment would be due on April 1.

This arrangement falls under trade credit, where a vendor allows a customer to purchase goods or services upfront and pay later. Vendors offering Net 90 terms include this condition on invoices, and customers record these as accounts payable, while suppliers list them as accounts receivable. Paying within 90 days means no interest is charged, though late fees can apply if payment is delayed beyond the due date.

Implications for Businesses

Offering or accepting Net 90 payment terms carries implications for both the seller and the buyer. For a seller, offering such extended terms can lead to delayed cash inflows, straining cash flow management. This longer waiting period means the business needs sufficient working capital to cover operational expenses while awaiting payment. There is also an increased risk of bad debt, as longer payment terms increase exposure if a customer faces financial difficulties. Despite these challenges, sellers may offer Net 90 to attract large clients, secure significant orders, or align with industry standards, potentially boosting overall sales.

For the buyer, Net 90 terms provide substantial benefits, primarily by improving liquidity and cash flow management. Having 90 days to pay allows a business to use its funds for other operational needs or investments before payment is due, acting as a short-term working capital tool. This extended period can also aid in inventory management, as buyers might sell purchased goods and generate revenue before the invoice payment is required. Buyers avoid incurring interest expenses, provided they pay within the stipulated 90 days.

Net 90 in Context

Net 90 terms represent a longer payment window compared to common terms like Net 30 or Net 60. Net 30 is often a standard in many B2B transactions, balancing buyer flexibility and seller cash flow. Net 60 offers a middle ground, suitable for larger purchases or industries with longer project cycles.

While less prevalent than shorter terms, Net 90 is common in specific industries or for large transactions where extended credit is necessary. Industries such as manufacturing, wholesale distribution, construction, technology, advertising, and marketing may utilize Net 90 terms. These extended terms are often reserved for large retailers, long-standing clients with strong payment histories, or for high-value contracts that require a longer period for the buyer to generate revenue or manage capital.