What Every Small Biz Should Know About Net 30 Terms

Do you give terms?

This is a sentence you’ve heard or will hear if you are in the wholesale business. But, what does it actually mean? The phrase gets casually thrown around as if everyone has a clear understanding of what it means.

First, let’s chat about  Net 30 (Trade Credit) in general terms. It means you take an order and get paid in full in a set amount of (30) days.

If you run your Small Biz on an all “cash-basis” extending credit can be daunting. You certainly don’t have to do it either. It’s common practice to run a credit card when the order is shipped. You get instant satisfaction and semi-instant payment from your CC (Credit Card) processor.

Why should you ever extend credit? Well, there are larger retailers that “only” do business on Net 30 terms. Providing trade credit to the select clients can be a way to position your company  for growth. If you want to grow, it can be tough to stay on a “cash-basis.” Not impossible, just tougher.

The downside is, if you don’t manage the process of Net Terms you could end up in a cash bind, late payment, chasing payments and employing bill collectors. Eventually, even writing off non-payments as bad debt. Not fun.

As you can see, there’s a fine between trying to grow your business and the risk of extending credit to retailers.

When you’re still relatively small, a $200 or $500 order may seem like a large order. When a retailer asks if they can have Net 30, you may want to extend credit to get the order.

Just because they ask for Terms does not mean they are a large retailer or even have good credit. Even if they say they only do business on Net 30. That doesn’t mean YOU have to and you still may get the order.

Just to let you know, an order of $200 or $500 is not a larger order for any established boutique or small retailer. They’ll have many lines with required minimum buys that involves rules for reorders and fixtures. These larger branded companies generally give terms because the $ is high.

When retailers ask for Net 30 on their order with you, they’re simply trying to extend their date of payment in order allow them time to sell your goods to pay the bill.

Nothing wrong with that- for them.

For you, it’s all good until they are late with payment and you expend time and energy for a lousy $200.

If they can’t afford to pay $200-500 by credit card for the order, then they really can’t afford to be doing business with you. Now, they may have lots of $500 orders with various retailers and you may have to run the CC# a few times or call for a new number….but it usually goes through.

With that said, there are times smaller orders are placed and retailers would like to establish credit with you on follow-up orders. This is more of a bookkeeping issue for them. Accountants Payable likes to have planned orders, invoicing, etc., so they can plan and track the payments and paper trail more efficiently. This is not your concern, you can still say no. You can make the decision on a case per case basis.

When a retailers asks if you extend terms, the ones that are prepared hand you a list of credit references including banks and wholesalers they do business with.

You then call these references to get an idea of their history. Of course, they will only offer the references that they know will give good feedback.

The banks can only tell you if they have an account or not. The other wholesalers can give your more information pertaining to payment history, duration of business relationship, etc.

You can, of course, have your own Credit Application. However, if a company is used to doing business on terms they usually have a sheet prepared. So, I wouldn’t worry too much about having your own.

There are services that, for a fee, will provide a commercial credit report on a company. Examples would be Dunn & Bradstreet (D&B), Experian or Credit.net.

All of this checking and references does not guarantee payment, but it does give you a better idea of who you are dealing with.

The funny thing about Terms is that there is a balance of what you can afford to extend credit on and what you cannot. You would think the larger the order, the more likely it would be that they expect and you would extend credit. That’s not the case.

You may receive an order for $1000 or $10,000 or more. This may be from an overseas distributor, large hotel or chain retailer. When you’re small or even medium size, purchasing the materials to manufacture the products for the order may be difficult without prepayment or some other agreement. But that’s another topic. Let’s just consider your average size order.

So, you’ve decided to extend terms…what does that actually mean?

The fact is, it means different things to different people. Of course, it’s usually understood according to the bias of what side of the fence you’re on.

Check out the variations below. I’m sure you’ll be able to see which ones the wholesaler and which ones the retailer would like to believe.

• Your business RECEIVES CHECK (in hand) a few days after the 30 calendar days from the client RECEIVED the shipment. Meaning the client/retailer mailed the check on or right before the 30th day after receipt.
• RECEIVE CHECK (in hand) by the 30th calendar day of when goods were RECEIVED by retailer. This includes transit time in mail.
• Still others define it as RECEIVING (in hand) the CHECK within 30 days of SHIPPING the goods (including the transit time in the 30 day term)
• And then it can be defined as RECEIVING the check and cashing it (RECEIVING PAYMENT) within 30 days of shipping.
• Lastly, you may get called with a CREDIT CARD # for payment to be charged against by the 30th calendar day. This is the worst because you have waited to get paid AND you have to pay the CC merchant and processing fee. BUT- You have been paid.

So, I’m sure you had to read the list a few times to get it straight. The one thing that is agreed upon is that the 30 days DOES include weekends and holidays. 30 days means 30 calendar days.

The point of having terms is giving the retailer a reason to pay it on time. If there’s nothing being held over their head why should they pay it on “time?” You need an Either/Or statement.

• Either the retailer pays it by X date OR  they start incurring finance charges of X% per day.
• Your company must receive the payment within X days or you will charge the CC# the retailer must provide at time of ordering on the X day after payment due.
• If there is a late payment, Net Terms will not be extended for next X orders.
• Net Term payment will be made by check, not CC as matter of regular business. If you let the retailer have terms AND they always intend to pay by CC# – that is not acceptable. You loose time and money. In this case, you loose money 2x’s. Time lost and CC fees. If they want to pay by CC# then they should do it up front.

Simply saying Net 30 doesn’t mean anything. YOU have to DEFINE the TERMS.  The same with Net 15, 45, 60, 90.

Have your terms clearly stated on the order, invoice and the policy section in the wholesale area of your website.

Once they sign the order, they have agreed to the terms.

If you take the order by phone, be sure to email them a copy of the order with the Terms clearly stated. You may even have them fax a signed copy back to you.

Don’t feel like you are being a pain. No matter your size, YOU have to watch your back. No one is going t watch it for you, they’re too busy watching their own.

It is easier to have established Terms in the beginning than trying to enforce new ones after the fact.