What Are Net 90 Payment Terms and How Do They Work?

Last Updated October 18, 2023

Few invoice payment terms have more significant ramifications than net 90. Reason being, net 90 are some of the longest payment terms you will come across as a business owner, meaning working on these terms can greatly affect business cash flow for both the buyer and seller.

Because of this, it’s important to analyze net 90 terms in-depth to gain a fair understanding of what they mean, how they work, and the overall benefits and drawbacks of long payment terms.

What Does Net 90 Mean and How Does It Work?

Net 90 tells a buyer that they have 90 days from the invoice date to make the full payment. Vendors who choose to work on net 90 will have included the terms in the contract with their business partner, also laying out exactly when the terms start and finish. For example, the clock could start either once you send the invoice, or once the products or goods are received by your customer.

This extended payment term provides buyers with ample time to manage cash flow and inspect the goods or services they’ve received and is most commonly used in-business-to-business transactions. These terms are commonly utilized in the manufacturing, wholesale, and construction industries, where projects and goods are particularly costly, meaning purchasers need more time to come up with cash.

Other Common Net D Invoice Payment Terms

In addition to net 90, several other net D payment terms exist (“D” = the number of days a buyer has to settle an invoice). These include the following:

Net 7: Buyers have 7 days from the invoice date to make payment.
Net 15: A 15-window for payment from the invoice date.
Net 30: Considered one of the most common payment terms, net 30 allows buyers a month to settle their invoices.
Net 45: An extended payment term that shouldn’t be the first choice for small businesses with cash flow challenges.
Net 60: A 60-day payment window which allows buying businesses significant time to manage their finances.

Pros of Net 90

As a vendor, know that long trade credit terms like net 90 will mainly benefit the customer rather than your business, because for them, it allows for added flexibility and more time to settle invoices. However, by effect it can benefit your business by bolstering the relationship with your customer. Offering net 90 to them will considerably reduce the chances that your customer fails to pay their invoice on-time, and they’ll appreciate the added time to generate the funds.

However, if working on net 90, you may end up twiddling your thumbs awaiting payment for months, which brings us to the cons.

Cons of Net 90

While net 90 is beneficial for buyers, it can pose cash flow challenges for vendors who aren’t prepared. Waiting for an extended period to receive payment can put an unnecessary strain on your business’s finances – particularly if you run a small to mid-sized business.

The delay in incoming funds can impact the ability to cover operating expenses, invest in growth, or respond to unexpected financial emergencies. When a seller decides to offer net 90 payment terms, they must be prepared to go months without receiving payment, or else they could find themselves in a tough spot.

Plus, although a business should theoretically be able to settle an invoice within 90 days, net 90 still doesn’t eliminate the chance of not getting paid at all. Unfortunately, this is an evitable aspect of business – customers who fail to pay. If working on net 90, you may wait three months for your cash, only to never receive it at all. Had you been working on net 7 or net 15, for example, you’d recognize the lack of payment quickly and manage the problem faster than you would with net 90.

Solutions to Long Payment Terms Like Net 90

You might be working on net 90 for good reason – maybe you have a great relationship with your customer and you’re not operating on a tight budget.

But if you’ve already agreed on long payment terms like net 90 or you’re struggling to accelerate the terms during contract negotiations, there are strategies to mitigate the impact on your cash flow.

1. Utilize Early Payment Discounts to Encourage Prompt Payment

Offering early payment discounts, such as 2/10 Net 90, incentivizes buyers to pay promptly. Under these terms, buyers can take a 2% discount if they pay within 10 days – encouraging timely settlement of invoices.

This isn’t the only early payment discount example. This concept exists for other payment terms, as well, such as 2/10 net 30 or 1/10 net 30.

2. Renegotiate Payment Terms with Your Business Partner

If you find you can’t afford to work on net 60 or net 90 terms, keep trying to renegotiate payment terms with your business partner – particularly if you have a long-standing relationship. On the whole, people and businesses are reasonable, and want to foster an advantageous business relationship for all parties. For example, if early payment discounts aren’t the answer, perhaps you can settle on net 45.

3. Try Invoice Factoring

Invoice factoring is an innovative alternative financing option where businesses sell their unpaid invoices to a third-party company at a discount in exchange for immediate cash. Invoice factoring can be a powerful solution for businesses to improve cash flow while still offering extended payment terms to clients or buyers.

Should My Business Work on Net 90 Payment Terms?

If you’re still unsure whether net 90 terms are right for your business, the following table should add clarity to your situation:

Yes	No
You run a large business	You run a small business
You’re in the wholesale, construction, or manufacturing industry	Your customers’ creditworthiness is anything other than excellent
You have a good working relationship with your customer	Your customer has stated they can work on shorter terms than net 90
You don’t suffer from cash flow challenges	You’re dealing with cash flow or working capital challenges

In some instances, small to mid-sized business owners might choose to work on net 45, net 60, or even net 90, but the absolute requirement in this scenario is an ability to stay afloat in the interim while awaiting payment. If you find that long payment terms are causing cash flow challenges, leading to further issues such as an inability to make payroll, for example, it’s time to find a solution.

Net 90 FAQs

You still might be wondering what is Net 90? Here are some common questions about Net 90 payment terms.

What does net 30/60/90 mean?

Net 30, Net 60, and Net 90 all indicate the number of days a buyer has to make payment from the invoice date. Net 30 means 30 days, Net 60 means 60 days, and Net 90 means 90 days.

What do net terms on an invoice mean?

The phrase “net terms” on an invoice specifies the agreed-upon timeframe within which the buyer is expected to pay the invoice in full. For example, if terms read “net 7”, this means a buyer has 7 days to submit payment from the date an invoice was issued.

What is the meaning of 2/10 net 90?

2/10 Net 90 is a payment term that offers a 2% discount if the buyer pays the invoice within 10 days. If not, the full payment is due within 90 days. It’s a way to encourage clients to pay faster.