What Is Net 45? Payment Terms & Cash Flow Impact

Payment terms define the timeframe for a buyer to settle an invoice. One common arrangement is “Net 45,” meaning the full amount owed for goods or services is due within 45 calendar days. This term serves as a form of trade credit, allowing businesses a defined period to manage their finances before payment is required. The general purpose of such terms is to facilitate commerce by providing flexibility to buyers while ensuring sellers have a predictable payment schedule.

Defining Net 45

“Net” payment terms, such as Net 30, Net 60, or Net 90, represent trade credit extended by a seller to a buyer, where the full invoice amount is due by a specific number of days from a designated date. Net 45 means that payment is required in full within 45 calendar days. This period begins from a specified date, most commonly the invoice date, and includes all days, including weekends and holidays. The seller provides a short-term, interest-free credit period, allowing the buyer to receive goods or services and defer payment. This credit aspect can be a significant factor in business-to-business relationships.

Applying Net 45 Terms

Net 45 terms are indicated on a sales invoice as “Net 45” or similar phrasing. The 45-day period usually begins from the invoice date, though it can sometimes be specified as the shipment date or goods receipt date, depending on agreed terms. To determine the due date, add 45 calendar days to the invoice date. For instance, if an invoice is dated January 1st with Net 45 terms, the payment would be due by February 15th. This calculation accounts for the 31 days in January and then counts 14 additional days into February to reach the 45-day mark.

It is important for both parties to track this timeline carefully to avoid late fees or misunderstandings. Some businesses may offer early payment discounts, such as “2/10 Net 45,” meaning a 2% discount if paid within 10 days, otherwise the full amount is due in 45 days.

Impact on Business Cash Flow

Net 45 terms directly influence the cash flow of both the seller and the buyer. For the seller, extending Net 45 terms delays cash receipt for provided goods or services. This ties up working capital in accounts receivable, impacting immediate liquidity and the ability to cover operational expenses or invest in growth. While sellers may gain a competitive advantage by offering more flexible terms, they must manage their financial planning to account for this delayed cash inflow.

Conversely, for the buyer, Net 45 terms provide an extended period to remit payment, offering flexibility in managing cash resources. This allows the buyer to generate revenue from purchased goods or services before payment is due, or to align payment with their cash inflow cycles. The additional time helps buyers optimize short-term financial planning and ensure funds are available when the invoice is due.