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What does Net 30 mean?

The term “Net 30” is used to refer to the amount of time (in days) a customer has to pay an invoice. If an invoice is Net 30, the customer has 30 days to pay the net amount (total minus any discounts), before a company may start adding finance charges or late fees. If the terms are Net 15 (or even Net 10), the customer has 15 (or 10) days to pay.

You might also see something that looks like this on an invoice: 2/10 Net 30. What does it mean? This will tell a customer that they have 30 days to pay the invoice, BUT if they pay their invoice within 10 days, they can deduct 2% from the invoice total. Giving your customers a small discount is a good way to encourage early payment.

Here’s an example:

You have an online clothing boutique and you’ve purchased inventory from a manufacturer, who sent you an invoice for $5,000. The terms on the invoice are listed as 3/15 Net 30. In your ZipBooks account, the full $5,000 will appear in your accounts payable category.

You decide to pay within the 15 days so that you can get a discount. When you pay the vendor, $4,850 will be transferred from accounts payable to your Inventory Expense category, and $150 will be added to the Inventory Discounts category you set up (since it’s not cash you paid, but it’s also not an amount that’s due anymore, so it won’t stay in accounts payable).

Pretty simple, once you know the terminology!

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