What Is a Net 60 Account and How Does It Work?

Businesses frequently utilize structured payment agreements, known as payment terms, to define when and how payments are made. These terms are crucial for both buyers and sellers, establishing clear expectations for financial obligations and effective commercial relationships.

Defining Net 60

“Net 60” is a common payment term signifying that the full invoice amount is due 60 calendar days after the invoice date. This term represents short-term credit extended by a seller to a buyer, providing a two-month window to settle the financial obligation. The word “net” indicates the total amount due after any applicable discounts or deductions.

It is a widely used benchmark in business-to-business (B2B) transactions. Sellers provide goods or services upfront, expecting payment within this specified timeframe. This arrangement allows the buyer to manage their finances before the payment is due, making it a flexible option for many companies.

The Payment Cycle

The 60-day period for a Net 60 account typically begins on the invoice date. For instance, if an invoice is dated May 1st with Net 60 terms, payment would be due by June 30th. These 60 days include weekends and holidays, as the count is based on calendar days.

While the invoice date is the standard starting point, the 60-day period might begin from the date the buyer receives the invoice. Clear communication and documentation of these terms are important to prevent misunderstandings about when the payment clock starts ticking. Some Net 60 terms may also include early payment incentives, such as “2/10 Net 60,” where a 2% discount is offered if payment is made within 10 days; otherwise, the full amount is due in 60 days.

Context in Business Transactions

Net 60 terms are prevalent in B2B settings, serving as a form of trade credit. This allows buyers to receive goods or services and generate revenue before payment is due, which can be beneficial for managing cash flow. This extended payment window provides a financial buffer, allowing businesses to align payments with their revenue cycles.

Offering Net 60 terms can enhance business relationships by demonstrating trust and flexibility, potentially leading to stronger, long-term partnerships. Many larger companies, wholesalers, and distributors frequently utilize these terms, as they allow retail stores and e-commerce businesses to sell goods to their customers before the supplier invoice needs to be paid. This practice essentially provides an interest-free loan to the customer for the duration of the payment term.