Payment Terms
Definition
The contractually agreed timing and conditions for paying supplier invoices, such as net 30 or net 60 days, often including any discounts for early payment.
In Practice
Payment terms define when cash leaves your company after a purchase. Net 30 means the invoice is due 30 days from the invoice date; 2/10 net 30 adds a 2 percent discount if paid within 10 days. Terms directly shape working capital: stretching from net 30 to net 60 means the buyer holds cash a month longer, effectively getting free financing from the supplier.
But terms are a negotiation lever with real costs on both sides. Small suppliers financing 90-day terms through expensive credit will price that burden into their quotes, or worse, become financially fragile. Sophisticated buyers treat terms as part of the total package and may offer early payment or supply chain finance to strategic suppliers in exchange for price or capacity commitments.
Example: a buyer extends standard terms from net 45 to net 60 across a 50-million-dollar supply base, freeing roughly 2 million dollars of working capital, while keeping net 30 for small suppliers to protect their cash flow.
Related Calculators
Related Terms
A price reduction a supplier offers in exchange for the buyer paying an invoice sooner than the standard due date, commonly expressed as terms like 2/10 net 30.
Supplier NegotiationThe structured process of reaching agreement with suppliers on price, terms, and conditions, using preparation, market data, and leverage to secure the best total-value outcome.
Contract ManagementThe discipline of creating, executing, and monitoring supplier contracts so that negotiated terms are actually delivered and risks are controlled through the contract's life.