What Does Net 45 Mean on an Invoice?

Invoices are formal requests for payment for goods or services provided. These documents include specific payment terms that clearly communicate the seller’s expectations regarding when payment is due. Establishing these terms is important, as it sets a precise timeline for financial obligations and helps manage cash flow effectively for both parties.

Understanding Net 45

The term “Net 45” on an invoice means the total amount owed is due within 45 calendar days from the invoice date. This payment term provides a defined period of credit to the buyer. For the seller, setting a “Net 45” term helps establish a predictable schedule for accounts receivable, which is the money owed to the business.

From the buyer’s perspective, “Net 45” offers flexibility in managing their accounts payable, which is money they owe to others. This extended payment window allows businesses to use the received goods or services to generate revenue before payment is due. It can also assist in optimizing working capital by aligning cash outflows with cash inflows. While offering a longer credit period can be a competitive advantage for sellers, it requires careful management of their own cash flow to cover operational expenses during the 45-day waiting period.

Calculating the Due Date

To determine the payment due date for a “Net 45” invoice, count 45 calendar days forward from the invoice date. The 45-day period begins on the date the invoice is issued. For example, if an invoice is dated August 1st, the payment is due 45 days later.

If an invoice is dated January 1st, counting 45 days forward makes the payment due on February 15th. Weekends and holidays are included in this 45-day count, unless the payment terms explicitly state otherwise. Businesses must account for all calendar days when calculating the final payment deadline.

Common Payment Terms

“Net 45” is one of several common payment terms businesses use on invoices, each offering a different credit period. “Net 7” and “Net 30” require payment within 7 and 30 calendar days, respectively, often used for quicker access to funds. “Due Upon Receipt” mandates immediate payment upon invoice delivery, while “COD” (Cash on Delivery) requires payment when goods are delivered.

Other terms like “PIA” (Payment in Advance) require the buyer to pay the full amount before any goods or services are provided. Some payment terms also include incentives for early payment, such as “2/10 Net 30.” This means the full invoice amount is due in 30 days, but the buyer can receive a 2% discount if payment is made within 10 days of the invoice date.