What is Net 45?- Definition
Net 45 - Due 45 days from Invoice date. Net 45 payment term indicates the number of 45 days that are available to the client to pay for the goods or services that have been rendered by the supplier.
Understanding Net 45
A net 45 payment is a phrase that refers to an invoice that a customer must pay within 45 days. Depending on the industry, product or service and relationship between the biller and recipient, invoice payment terms can vary. Requiring payment within 45 days, as is true in a net 45 day payment invoice, is a relatively common invoice payment term.
Many businesses and individuals leverage penalties against accounts that pay later than the agreed-upon term. These measures can include late fees, for example, or limited purchasing privileges. In the case of a net 45 payment agreement, these penalties would go into effect after 45 calendar days without payment.
Who uses Net 45 payments?
Business owners, managers and independent freelancers often set contract terms for agreements between themselves and customers. For some industries, a net 45 payment agreement might be a relatively long time to receive payment. If, for instance, you needed to reconcile accounts on a monthly basis, a 15 or 30 day payment term might be more effective. Net 45 payments are therefore usually better for companies and individuals who can afford to wait a little longer before receiving payment.
Tips for Writing Effective Payment Terms
The most effective invoice payment terms are often those that result in the quickest payment return rate. If you are in the process of writing or revising your invoice payment terms, here are some tips that might help:
Word your invoices clearly
- Using professional language in your invoices can help convey a sense of obligation, which can help you receive payment in a timely fashion.
- It is also important to communicate the required payment time period clearly, because some clients might not be familiar with phrases such as net 45 payment.
- Consider communicating due dates in terms of days or dates, and be clear whether you are referring to business days or calendar days.
Itemize each invoice
- Itemizing your invoices means listing out the items included according to type or category.
- Try to include the product name, a description of the product as well as the date those goods are delivered.
- Clearly itemizing invoices can increase your likelihood of receiving timely payments.
Use the right payment terms
- Using shorter payment terms such as a net 15 or a net 30 can be useful for new clients or those who might be inclined to pay their bills late.
- Other clients, especially those you trust to pay on time, might benefit from a longer term such as a net 45 payment term.
- Try to carefully consider each situation and any relevant details when deciding on payment terms for your business or even for an individual client.
Implement a late fee
- Including your late fee policies on your invoices can motivate your clients to render payment promptly in order to avoid that fee.
- When clients are visually reminded of the late fee policy on each invoice they might be more likely to remember that policy and the invoice due date.
- They might also choose to pay your invoice before others that do not impose a late fee.
Send invoices promptly
- Try to send your invoices as soon as the product has been delivered.
- The sooner the client receives their invoice, the sooner they can initiate their accounts payable process and render the payment due.
- One way to do this is by establishing and communicating a set billing date so that clients can anticipate when they'll receive their invoice and then send payment.
Incentivize timely payment
- Providing an incentive for timely payment can be another way to write effective invoice terms.
- Some businesses, for example, offer a discount for accounts that are paid within a certain number of days in the payment term.
- One common discount structure is to offer 1-2% off of each invoice total if the account is paid in full within the first 10 days of a billing cycle.
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