What is Net 30 and how to use it for your freelance business
When it comes to freelance assignments, it is one thing to discuss the payment terms in detail with your clients, and another thing to ensure the detail is properly reflected in the payment invoice.
Among small businesses, Net 30 is the most used format for writing payment terms. Other options can be used.
However, the Net 30 format is mostly favored; it is a direct and non-forceful way of reminding the clients about their contractual obligation to pay you according to the expected time.
This post will take you through what Net 30 is in invoicing writing, and how using it will help to improve the financial standings of your small business.
What is Net 30 all about?
First, we need to remove the confusion around the word "net" which, in business communication, refers to the amount payable for goods and services, excluding tax and other miscellaneous charges.
That said, Net 30 is a shorthand alternative for inserting a clause in the payment terms, instructing the client that payment is expected within 30 calendar days after the invoice's issuance date.
Usually, the seller offering those goods or services will add a discount offer as an incentive to make the clients pay faster before the stipulated 30-days run out.
For example, if the Net 30 payment term is written as "5% 10, Net 30", the business owner is simply saying the customer can pay 5% less the original amount if the payment is sent within the first 10 days.
However, it's worth noting that rather than using the "Net 30" format, you can adopt a more simple style that is more comprehensible. For example, it's better to state the terms as "payment is due in 30 days".
How would Net 30 help a freelance business to grow?
Essentially, Net 30 is a credit term tactically used by businesses to win clients over to themselves.
Deferring payment up to 30 days after delivering the tasks shows the quality of the confidence you have in your expertise.
Moreover, by giving your clients some breathing space while expecting your service due, you are giving them a chance to warm up to you naturally.
That way, you solidify the customer-business relationship and establish a long-lasting trust that could lead to the positive patronage of your business.
What are the potential pitfalls for using Net 30?
First of all, you should know that the payment postponement period must not be as lengthy as 30 days. Shorter time frames like 10, 15, or 20 may be used.
Also, you should weigh carefully your business situation before adding a payment deferral clause to your invoice.
Net 30 is not recommended in cases where the freelance business is not in a buoyant cash position to maintain operations for long.
But if you must give your client room to pay, days after delivery, use shorter durations like Net 10, Net 15, etc. You may even go further to include a penalty fee for late payment.
However, for trusted customers, you can offer them generous options such as Net 40, Net 50, Net 60, etc. But again, this all depends on the financial strength of your business.
What's the best way to place Net 30 payment terms on an invoice?
Most professional invoice templates make provisions for stating payment terms at the top position.
Alternatively, you can insert the credit terms under the "agreement" section, usually found at the bottom of the invoice layout.
However, for better clarity and also to avoid disputes, it's suggested to write the Net 30 payment terms at the bottom under the "Note" section and the due date at the top.
This arrangement is the default style used in the Weinvoice platform. See the image below:
In this article, I have endeavored to demonstrate how using Net 30 payment terms can help to strengthen the vendor-client relationship.
However, it's even more important to know when not to cross the boundary.
Your business will be the worst for it if the majority of clients you work with are the unscrupulous types that won’t bat an eyelid and exploit you badly for it.
Therefore, tread with caution.