Credit terms define when customers must pay and what incentives or penalties apply. For new credit professionals, understanding these terms is foundational, they affect cash flow, customer relationships, and your daily collection priorities.
Common Payment Terms
Net 30, Net 60, Net 90: Payment is due in full within 30, 60, or 90 days from the invoice date. These are the most common B2B credit terms. The clock typically starts on the invoice date, though some companies use delivery date or month-end dating.
2/10 Net 30: The customer receives a 2% discount if they pay within 10 days; otherwise, the full amount is due in 30 days. This early payment discount incentivizes faster payment and improves cash flow. The discount percentage and timeframe vary, you might see 1/10 Net 30 or 2/15 Net 45.
Due on Receipt: Payment is expected immediately upon invoice receipt. Common for smaller transactions, new customers, or high-risk accounts.
COD (Cash on Delivery): Payment must be made when goods are delivered. This eliminates credit risk entirely but requires coordination with operations and delivery teams.
CIA (Cash in Advance): Payment before goods ship or services are performed. Used for new customers, international transactions, or high-risk situations.
How Terms Impact Your Work
Payment terms directly affect when you start collection efforts. A Net 60 invoice isn’t overdue until day 61, even if you personally think 60 days is too long. Understanding this prevents premature collection calls that frustrate customers.
Terms also influence cash flow forecasting. Companies with predominantly Net 30 terms convert sales to cash faster than those offering Net 60, affecting working capital requirements.
Industry Variations
Different industries have different standard terms. Construction often works on Net 60 or Net 90 due to project payment cycles. Retail may expect Net 30 or faster. Manufacturing varies by sector. Know your industry norms, terms significantly outside these standards either attract or repel customers.
Why Terms Matter
Clear terms prevent disputes. When customers understand exactly when payment is due, arguments about “late” payments decrease. Ambiguous terms create confusion that damages relationships and delays payment.
Competitive terms can win or lose business. If competitors offer Net 60 and you insist on Net 30, you may struggle in the marketplace. Conversely, tighter terms can signal premium value or filter out cash-constrained customers.
Understanding credit terms gives you the foundation for every customer interaction. When you know what’s owed, when it’s due, and what incentives or penalties apply, you can have confident, productive collection conversations.
Credit terms are established in your credit policy. For guidance on designing effective policies that balance sales enablement with risk management, explore Chapter 2 of The Head of Credit & Collections Handbook or browse our Beginners category for more foundational concepts.
