What Is Net 60 and How Does It Affect Your Business?

Businesses often use payment terms when immediate payment for goods or services is not feasible. These terms establish when payments are due and are fundamental for managing financial operations. Understanding specific payment terms, such as “Net 60,” is important for maintaining healthy cash flow and fostering strong business relationships.

What Net 60 Means

“Net 60” is a payment term indicating the full invoice amount is due within 60 calendar days from the invoice date. The term “Net” implies no early payment discount is offered, though a seller may still provide one. The 60-day period typically begins on the invoice date, not when goods or services are received.

This payment term functions as short-term trade credit from the seller to the buyer. For sellers, offering Net 60 provides a competitive advantage by extending credit. For buyers, it offers an extended period to manage finances before payment is due. This arrangement is common in business-to-business (B2B) transactions, especially in manufacturing, wholesale, and government contracts.

Cash Flow Effects of Net 60

Net 60 payment terms significantly influence cash flow for both buyers and sellers. For buyers, this extended payment window offers substantial financial flexibility. It allows them to generate revenue from goods or services before payment is required, improving working capital and liquidity. This period is beneficial for managing inventory cycles and aligning operational expenses with incoming cash.

For sellers, offering Net 60 terms means delayed cash inflow, which can strain working capital. They must cover operating expenses and costs for up to two months before receiving payment. Businesses with numerous Net 60 clients might face liquidity challenges and could need short-term financing, such as invoice factoring. These extended terms directly affect the timing of money movement, requiring careful financial planning.

Strategies for Handling Net 60 Terms

Sellers offering Net 60 terms should implement robust financial practices. This includes conducting thorough credit checks on prospective customers to assess their ability to pay, mitigating the risk of late payment. Clear invoicing with specified due dates and consistent follow-up on overdue payments are important for healthy accounts receivable. Sellers should also engage in precise cash flow forecasting and maintain adequate financial reserves for delayed revenue. While Net 60 implies no early payment discount, sellers might offer a small percentage discount for significantly earlier payments to incentivize quicker cash collection.

For buyers receiving Net 60 terms, responsible financial management is paramount. Accurately budgeting and setting aside funds ensures cash is available when the invoice is due. Effectively utilizing the extended payment window to maximize their own cash flow is a primary benefit. Maintaining strong supplier relationships through timely communication and consistent payment practices can also lead to more favorable future terms. Buyers should also be prepared to negotiate payment terms if their cash flow needs differ from the standard offering. Industry norms and existing business relationships often determine the flexibility of these terms.