Net 30 Terms: Avoid the Trap | An SMB Guide to 30 Day Payment Terms | Behalf

By January 14, 2017Customers, Customers Feature
small business guide to net 30 terms

The Small Business Guide to Net 30 Terms

If you are a small or midsize business (SMB), you know receiving payments from customers is critical to your cash flow. Even a well-seasoned accounts receivable veteran has the occasional customer pay late or not at all, but that is best case scenario. Many SMBs struggle to find payment terms their customers will agree to. The general rule of thumb is to offer net 30 or less, allowing customers to take up to 30 days to pay for their purchases. Net 30 terms is no cakewalk, however. SMBs that offer net 30 terms usually have customers who stall payments. Failure for customers to honor net 30 terms is so common it has been deemed “the net 30 trap.”

Hopefully you are reading this article before you have decided which payment terms you will offer your customers. If you have already committed to net 30 terms and want to proceed, exercise caution. The net 30 trap is not hard to figure out. Put simply, net 30 terms are a credit. By offering customers net 30 terms you extend them a credit for 30 days. This article explains five tips to help your small business better navigate the net 30 trap unscathed.

1) Cookie Method

You need to give your customers an incentive to pay on time, a cookie if you will. Many small businesses are successful using discounts and promotions as your cookie, rewarding customers who pay early. There are multiple ways to motivate customers to pay and another tried and true method is to charge interest on late payments. The interest rate is a tough cookie you give to late payers. You must set the interest rate high enough to incite customers to pay on time, rather than let it accumulate. The cookie method is effective when there is a specific action you want your customers to take and you have an effective reward or punishment to encourage that action.

2) Communicate

What does net 30 payment mean for you? Did it start the day your customer placed the order, or the day the goods were received? Do holidays and weekends count in the “30,” or are only business days building up?

The net 30 meaning can be vague and therefore open to interpretation. Clearly communicate when your “net 30” begins and any other details that customers may be held accountable for. You must be on the same page as your customer. Any uncertainty on their part will put your cash flow at risk. State your terms explicitly and firmly reinforce them.

3) Walk Away

Don’t be afraid to turn down a customer that offers you net 30 terms if you are uncomfortable with their ability to pay back. The transaction goes both ways. Just like your customer can refuse your services, you can refuse their business if you feel uncomfortable accepting their payment terms. Remember, net 30 is akin to extending credit and not every customer is a good credit risk. It is important that you listen to your gut and do what is best for your business.

4) Save Net 30 Terms for Repeat Customers

Try not to allow new customers to use net 30 terms. If you must use it, use 30 day payment terms with customers you have a strong relationship with. At the end of the day, it is a credit. They should display some level of trustworthiness or demonstrate their ability to follow through with payments, earning that credit, before you reward them with net 30.

5) Increase Your Working Capital

No matter how you approach net 30, you may still run into the occasional customer who is unwilling to pay or stalling payment. You can protect your business from the risk of going cash flow negative with short term financing. Some kind of line of credit can cushion your working capital and make you less dependent on customer payments. Don’t just hope for customers to pay, protect your working capital with a line of credit.

Navigate Net 30 Terms Better With Behalf’s Flexible Line of Credit

Navigating net 30 terms does not have to be a small business nightmare. With no hidden fees, Behalf offers a purchasing line of credit that takes the pressure off of your capital reserve. The reality is that many situations arise that cause healthy, growing businesses to develop gaps in their working capital. A Behalf line of credit is the perfect tool to get your business through temporary dips in revenue that make it hard to meet your business’ financial demands. Behalf offers flexible terms and allows you to create extended payment schedules with up to six months of extra time to pay for all your recurring business expenses.

Apply today and find out if you qualify to increase your capital reserve.