Net 30 vs. Net 60: Choosing Customer Payment Terms

Net 30 vs net 60 is a choice about how long you give customers to pay: 30 days or 60 days after the invoice date. The longer term makes you easier to buy from and can win sales, but it means you finance your customer's purchase for an extra month. This guide shows how to price that cost, when longer terms are worth offering and how to structure them so that you do not trade away your cash. It supports cash flow management and builds on how to speed up accounts receivable collections.

What the terms mean

• Net 30: payment is due 30 days after the invoice date.
• Net 60: payment is due 60 days after the invoice date.
• Variants: net 15, net 45, net 90, end of month (EOM) and "2/10 net 30" (a discount for early payment).

The stated terms are what you offer. The actual days to pay, measured by DSO, are usually longer. A customer on net 30 may pay in 38 days, while a net 60 customer may pay in 70.

The cash cost of an extra 30 days

Longer terms increase your receivables, which you must fund. The cost is the financing cost on that additional balance.

Worked example

A hypothetical customer buys $600,000 a year. Moving from net 30 to net 60 delays payment by 30 days.

• Daily sales to this customer = $600,000 / 365 = $1,644
• Additional receivables = 30 × $1,644 = $49,315
• At a 10 percent cost of funds, annual financing cost = $49,315 × 0.10 = $4,932
• As a share of the customer's sales: $4,932 / $600,000 = 0.82 percent

So, extending terms by 30 days is equivalent to giving this customer an 0.82 percent discount on every sale, if your cost of funds is 10 percent. At 15 percent, the cost is 1.23 percent of sales. If the company borrows at 6 percent, the cost is 0.49 percent. Use your own rate, which may be your line of credit rate or an internal required return.

Add the credit risk

Longer terms also increase credit exposure. The customer owes more for longer, and the chance of default before payment rises. If, for illustration, a customer has a 1 percent chance of failing to pay in any 30-day window, the extra 30 days adds exposure of about 1 percent of $49,315, or roughly $493 of expected loss. The effect is small for solid customers and large for risky ones.

When extending terms makes sense

When to hold at net 30

The break-even volume test

To see whether longer terms pay off, compare the financing cost with the extra contribution margin from added sales.

Suppose the product has a 35 percent contribution margin. The financing cost on the existing sales is $4,932 per year. To cover it, the company needs additional sales that generate $4,932 of contribution:

• Required extra sales = $4,932 / 0.35 = $14,091
• As a share of existing sales: $14,091 / $600,000 = 2.3 percent

If offering net 60 grows the customer's purchases by more than about 2.3 percent, ignoring the financing cost of the new sales themselves, it pays. If it only keeps the account without any growth, it is a cost of retaining the customer, which may still be justified. The point is to make the decision explicit.

Alternatives to simply granting net 60

• Price for it. Build the financing cost into the price for long terms, or offer a lower price for shorter ones.
• Offer an early-payment discount. For example, 1/10 net 60 or 2/10 net 60. The effective return to the customer is high, so check the math. See 2/10 net 30 explained.
• Offer tiered terms. Net 30 for small customers and new accounts; net 45 or 60 for large, proven customers.
• Use deposits or milestone billing on big orders.
• Set credit limits so exposure is capped.
• Offer net 60 with electronic payment commitments such as ACH, to reduce friction.
• Use financing. Invoice financing or factoring lets you offer longer terms while receiving cash early, at a cost. See invoice factoring vs. invoice financing.
• Phase the change. Move to longer terms only for customers who meet volume or payment history criteria.

When a customer asks for net 60

A request for longer terms is a negotiation, not a verdict. Prepare before you respond.

1. Understand the reason. Is it the customer's policy for all suppliers, a cash squeeze or a negotiating habit?
2. Price the request. Use the calculation above to show the cost in dollars and as a percentage of sales.
3. Offer a trade. Larger volume commitments, a price adjustment, electronic payment, automatic payment on the due date or a smaller credit limit with net 60 can all be part of the package.
4. Offer a middle ground. Net 45 costs half as much as net 60 and may meet the customer's need.
5. Set limits. Put a credit limit and a review date in the agreement so the terms do not become permanent by default.
6. Document it. Record the approval, the cost and the reason in the customer file.

Where the discussion is about reducing days to pay without harming the relationship, see how to reduce DSO without damaging customer relationships for scripts and tactics that preserve goodwill.

Look at actual payment behavior

Before changing terms, check how customers actually pay.

(Illustrative.) In this pattern, offering longer terms does not stop lateness; it shifts it later. A review of why customers pay late may be more productive than a change in terms. See how to read the accounts receivable aging report.

Setting a policy

A written terms policy helps salespeople say yes or no consistently.

1. Standard terms for most customers (for example, net 30).
2. Exceptions that require approval by the finance lead, with a calculation of cost.
3. Credit limits by customer class.
4. Criteria for extended terms: size, payment history, margin, strategic value.
5. Review of terms annually or when conditions change.
6. Consequences of late payment, including late fees and holds, applied consistently.

See how to write a B2B credit policy.

Impact on the cash forecast

Customer terms drive the timing of receipts. If your sales team grants net 60 to a new large account, the cash forecast should show the receipts two months later. If a customer shifts from net 30 to net 60, a one-time hole appears in cash: for a month, you receive no cash from that customer. In the example, the one-time hit is $49,315 for this customer alone. Plan for it in advance. See rolling cash flow forecasts.

Inventory and operations

For product companies, longer terms with a customer should be considered alongside the production and purchase cycle. If you buy inventory on net 30 terms and sell on net 60, you finance the gap. See the cash conversion cycle. Aligning supply terms, inventory and customer terms is a core theme of demand planning and inventory optimization.

Common mistakes

• Granting terms to win a deal without pricing the cost.
• Not tracking actual days to pay.
• Using one rule for all customers.
• Ignoring the one-time cash hit when terms lengthen.
• Leaving terms vague. Write the due date on the invoice.
• Waiving late fees without recording the exception.
• Forgetting that terms are negotiable. Customers often accept shorter terms if you provide value.

FAQs

Is net 30 or net 60 better?

Net 30 is better for your cash. Net 60 may help win or keep sales. The best choice depends on your margin, your cost of funds, your customer's strength and competitors' practices.

How much does net 60 cost compared with net 30?

It costs the financing on 30 days of the customer's purchases. At a 10 percent cost of funds, it is roughly 0.82 percent of the customer's annual sales, plus any increase in credit risk.

Can I charge more for net 60 terms?

Yes. Many companies price longer terms into the price list or offer a discount for shorter terms. State the terms clearly in the contract.

What payment terms are standard?

Net 30 is common in many B2B industries, but practice varies. Check what competitors and customers expect in your market.

Should I offer early-payment discounts with net 60?

Possibly, but compare the discount with your cost of funds. A discount that is expensive relative to borrowing costs reduces profit more than it helps cash.