The standard convention for credit terms has always been net-30. It provides your customers with enough time to pay but also allows you to receive payment within a reasonable amount of time. It seems to be the best option for all parties. Or is it? Though it is true that most businesses operate on net-30 credit terms, there is nothing special about it that makes it the best option for every situation.
Figure out what works for you
Many companies feel the need to stick to the industry “standard”, but no two business are built the exact same way. For some, Net-25 may make more sense or even Net-15. For others, it may make more sense to offer longer credit terms. It will all come down to the specific needs of your company and your customers. Some customers may bill their own customers on longer credit cycles and thus require you to match this in order to ensure they will always be able to pay. At the end of the day, there is no harm in experimenting and seeing what works best for you.
Encouragement to Pay Faster
By forcing your customers to operate on a quicker payment cycle, you can create a sense of urgency that puts payments to your business above others. By shortening their credit cycle, they know you mean business and are less likely to tolerate late payments compared to other businesses they may owe money to.
Be Alert to problems Sooner
When you operate on Net-30 terms, it takes you a minimum 30 days to find out that there might be a problem with your customer paying. You then have to send a reminder, potentially call, and go through your own collection process. This will take time and for every day after the initial sale, collecting the money becomes harder and harder. If you were to switch to shorter terms, you can find these problems out sooner and potentially get them resolved easier.
Obviously, there are also drawbacks to switching up your credit terms. Some customers may be resistant to any change they see as possibly negatively impacting their business. You may also find that net-30 works best for your business. The point is not that net-30 is bad, the point is that challenging the status quo is how you improve your business. Let us know what your opinion is. Do you operate on net-30 terms or do you mix it up?