#023  Key Payment Terms Explained 

Have you always been in full-time roles but recently moved, or are planning to move, into a consulting role and come across payment terms such as Net 30, Net 45, or Net 60? Do you wonder what they mean? 

If so, continue reading this article as I discuss these payment terms and how you can be clear about them before accepting a contracting role.

I’d like to add a point here that all the content I share with you is based solely on my experience, learning, and research. but there might be some instances you have come across that I haven’t, and as a result, you may not always be in sync with the content I share. In that case, please share your experience in the email below, as it’s a great way for us to learn from each other.

Alright! 

Let me first tell you some of the popular payment terms. These are Net 15, Net 30, Net 45, Net 60 and Net 90.

We'll discuss the details in a moment, but first, let's understand that payment terms refer to the schedule set by a company for when they will pay you for your services.

Now, Let me explain different payment terms with the help of a calendar so you can understand them better.

For example, if you join a company on May 1st under the Net 30 payment term, you'll raise the invoice on the last day of May or by June 3rd, considering the weekend on the 1st and 2nd. 

Most companies require you to submit an invoice after getting an approved timesheet from your manager, which you need to attach for verification. Once you raise the invoice, your company will settle it immediately or within a few days. 

This is a common and preferred payment term in the industry because consultants don't have to wait long for their payment.

Net 45 and Net 60 mean you'll get paid 45 or 60 days from your start date. You typically raise an invoice after a month of work, but payment is made 45 or 60 days from your start date, as per the agreed term.

Similarly, with Net 90, you get paid after or towards the end of 90 days from your start date, though this is less common. In Net 15, you receive your payment within 15 days.

I would say it’s only the first payment when you have to wait according to the payment term; once you get into the payment cycle, it becomes regular from the next month.Example with Net 60: 

1. First Invoice:

                        o   Start Date: May 1 

o   Invoice Submission Date: May 31

                  o   Payment Due Date: June 30 

You submit your first invoice on May 31 and have to wait 60 days for the payment due on June 30.

2. Second Invoice: 

o   Invoice Submission Date:  June 30

o   Payment Due Date: July 31

You submit your second invoice on June 30 and receive the payment on July 31.

3. Third Invoice:

o   Invoice Submission Date: July 31

o   Payment Due Date: August 30

You submit your third invoice on July 31, and receive the payment on August 30.

Once you get past the first payment, each subsequent payment becomes regular as long as you continue to submit invoices on a regular schedule.

Now that you understand what these payment terms are:

I would also like to tell you that some companies settle invoices only when they receive payment from their client on a Net 30/45/60 basis. 

Others pay upfront upon receiving the invoices from you without waiting for payment from the end client, as they might have healthy working capital and aim to keep you happy by paying well on time.

That said, it is crucial to have clear communication with a company so you know ahead of time when you will receive your first payment. After all, we all work for money, isn’t it?

It is important to have clear communication with your client before accepting an offer. 

Review Contract:

• The first thing you should do is review the contract carefully before signing it to make sure the payment terms are clearly stated. If the terms are not clear, you should ask for clarification. Whether they are Net 30, 45, or 60, cross-verify that invoices are paid on time according to the agreed terms before starting a project.

Negotiate Payment Terms:

• You can negotiate payment terms before accepting an offer. If the offered terms do not align with your financial needs, as you might have monthly bills to pay that are due before you receive your first payment, you can request shorter-duration terms. 

If a company’s payment cycle is Net 60 instead of Net 30 or 45, discuss this with the company to check if they can agree to modify the payment terms.

Build Trust and Professionalism:

Having clear payment terms with your client builds trust and professionalism in your relationship. It ensures both you and the client are on the same page, reducing the likelihood of disputes and leading to a smooth working relationship and potential future collaborations.

Alright!

This is the generic base for payment terms. There might be some companies that operate differently. If you have come across any such chance, do share your thoughts in the email below. This would help all of us know different ways around the world.

Happy Consulting!