Net terms

Definition

Net terms are payment terms offered by a seller to a buyer that extend the period for invoice payment without penalties. Commonly, these terms range from 30 to 90 days.

5 Must Know Facts For Your Next Test

1. Net terms are an essential component of trade credit.
2. They impact a company's working capital management.
3. Common net terms include Net 30, Net 60, and Net 90.
4. Longer net terms can improve customer relationships but may strain the seller's cash flow.
5. Shorter net terms help maintain liquidity but may deter some buyers.

Review Questions

• What are net terms and how do they affect trade credit?
• How do different net term durations impact working capital?
• Can offering longer net terms have any disadvantages? If so, what are they?

Related terms

Trade Credit: A type of financing where goods or services are provided with deferred payment.

Working Capital: The difference between a company's current assets and current liabilities.

Cash Flow Management: The process of monitoring, analyzing, and optimizing the net amount of cash receipts minus cash expenses.