What Does Net 15 Mean?

In business transactions, payment terms establish the conditions under which a buyer must settle an invoice for goods or services received. These terms are a standard part of commercial agreements, detailing when payment is expected. Clear payment terms help businesses manage cash flow and maintain expectations with trading partners.

Understanding Net 15 Payment Terms

“Net 15” is a specific payment term indicating that the full invoice amount is due within 15 calendar days. This period typically begins from the invoice date, though it can sometimes start from the date the buyer receives the invoice or when goods or services are shipped or received. The term “Net 15” serves as a clear instruction on an invoice, setting a firm deadline for payment. Its primary purpose on an invoice is to communicate an expectation for prompt payment, which helps the seller improve their cash flow. This short payment window is often preferred by small businesses or those in industries with rapid inventory turnover, such as manufacturing or wholesale, to ensure a steady influx of funds.

Calculating the Due Date

To determine the due date for a “Net 15” invoice, count 15 calendar days from a specified reference point. The most common starting point is the invoice date itself. For example, if an invoice is dated April 1st with Net 15 terms, the payment would be due by April 16th. Other possible starting points, which should be clearly stated in the agreement, include the date goods were shipped or received, or the date the buyer actually received the invoice. These 15 days include weekends and holidays, meaning the count is for calendar days, not just business days. However, some agreements may specify that if the due date falls on a weekend or holiday, payment is due on the next business day, so confirming this detail in the terms and conditions is important.

Impact on Business Operations

“Net 15” payment terms influence the financial operations of both the seller extending credit and the buyer receiving it. For the seller, these terms contribute to improved cash flow by reducing the time until payment is received. Quicker payments mean less reliance on short-term financing and a more predictable flow of funds, which can reduce the risk of late payments and bad debt. Managing accounts receivable efficiently is important, requiring timely follow-ups on payments to ensure funds are collected within the 15-day window.

For the buyer, “Net 15” terms affect accounts payable and budgeting, requiring prompt processing of invoices to avoid penalties. Adhering to these terms helps maintain a positive relationship with vendors, which can be beneficial for future transactions and creditworthiness. Failure to pay within the specified 15 days can lead to late fees, increasing the total cost of the purchase. Businesses must manage these short payment cycles to avoid liquidity issues.

Other Common Payment Terms

Businesses use a variety of other “Net X” terms to manage their payment schedules. “Net 30,” where payment is due within 30 days, is a widely used standard in many industries, allowing more time for payment compared to “Net 15.” Longer terms like “Net 60” or “Net 90” extend the payment period to 60 or 90 days, respectively, often used for larger orders or in industries with longer project cycles. Beyond these standard “Net X” terms, some agreements include early payment discounts to incentivize quicker payment. A common example is “2/10 Net 30,” which means a buyer can receive a 2% discount if the invoice is paid within 10 days, otherwise the full amount is due in 30 days. Other variations exist, such as “End of Month” (EOM) terms, where payment is due by the end of the month following the invoice date, offering different structures for payment expectations.