Net 30 Invoicing: The Biggest Freelancer Mistake

The standard invoicing payment term, Net 30, is often used by businesses of all sizes in all industries. It is a common invoicing practice that unfortunately should not be applied to all business types equally.

While it is effective for medium and large businesses, it can cause problems for smaller businesses. However, for freelancers, it can be downright detrimental.

In order to let you know why Net 30 invoicing is so bad for freelancers, I’ll go over exactly what it is and why many freelancers use it in the first place.

Then, I’ll show why the disadvantages greatly outweigh the advantages and most importantly, how you can receive the benefits while avoiding the disadvantages.

What exactly is Net 30?

Net 30 is an invoice payment term, where the ‘30’ stands for 30 days. Net 30 simply means that the client has 30 days to submit payment for the invoice.

Net 30 is the standard form of invoicing, so much so that countries like the UK legally oblige clients to pay their invoices within that time frame.

However, there are other variations to it: Net 21, Net 45, Net 60, Net 90, and so on.

One thing many people don’t realize is that Net 30 is actually a type of short-term credit that the seller is extending to the client.

Essentially, the goods or services have been provided for, and you as the supplier, are allowing your client extra time to pay—interest-free.

Why do freelancers use Net 30?

Perhaps the main reason why so many freelancers (and businesses in general) use Net 30 is that they just assume that is the expected way of doing things.

It is rarely, if ever , questioned, and the seller and buyer both tend to agree to it implicitly.

The secondary reason is that Net 30 payment terms actually provides an incentive for the client to use your freelancer services. This is because anytime that payment can be delayed, it increases the attractiveness of the purchase.

You can connect this idea with the reality of credit card purchases in America, where 1 in every 5 purchases are made with credit cards. No cash is being exchanged at the moment of purchase, so it is easier to make that purchase.

However, Net 30 is even better for the client because the credit is being extended without any interest charges.

If your clients are businesses, then Net 30 also helps them keep their cash longer which is better for cash flow. The more they can delay cash outflows, the greater their cash flow will be, which in turn allows them to meet their other financial responsibilities.

So what’s so bad about Net 30?

In reality, your invoice payment terms are beneficial to you depending on the size of your business and your number of clients.

For larger businesses, Net 30 is great because it is attractive for clients and they normally have a large amount of simultaneous clients. That means they get their invoices paid on rotating cycles where cash is constantly flowing in. With such cash inflows, they can regularly meet their financial obligations.

However, for freelancers, the situation is unfortunately not the same. Many freelancers don’t have many clients at the same time. In fact, many freelancers have one or two major clients that they depend on for their income.

If those clients take a while to pay, freelancers don’t really have other income options.

Secondly, many clients have different opinions on when the 30 days begins for Net 30. Is it from the date the invoice is issued (which is the accepted norm)?

Is it from the date the goods or services were provided? Or is it from the date when your client is first paid by his or her client? If the latter is the case, then that means freelancers won’t get paid 60, 90, or 120 days after they submit their invoices.

If your main client doesn’t pay you for 3 or more months, then you just won’t have enough money to meet your financial obligations. Your options are to continue to extend interest-free credit and hope the payment will come soon.

Alternatively, you can go to small claims court or cut your losses, and both of those options are horrible.

How to use Net 30 the right way

All is not lost. Net 30 as a short-term credit extension is not a bad thing, and there are ways to use the benefits to your advantage while avoiding the disadvantages.

1. Make sure you both agree to the time frame

As I mentioned above, many clients are confused about when the 30 days begin. Before you accept your client (or at any time, really), you should both come to an agreement about when the payment should be submitted.

As standard, it is normally 30 days from the date the invoice is issued (not received, but sent) to the client.

For example, if you use paper invoices and it takes one week to get to the client, the client now only has 23 days to pay the invoice.

2. Use shorter payment terms

You don’t have to stick with Net 30. In fact, Net 30 is best only for bigger businesses, and it is probably a holdover from previous generations.

There is no real reason why your clients shouldn’t pay you faster. Instead of using Net 30, you can shorter your payment terms to Net 21 or even Net 15.

That way, you get faster payment while still offering short-term credit.

3. Add late charges

This is perhaps the most important point here: you cannot offer interest-free credit forever. If your client doesn’t pay you in the time allowed, you need to apply charges when the invoice becomes overdue.

A good percentage is 5%, although you can choose whatever you think is practical for your freelancing services. You can apply the charge on a weekly or monthly basis.

If your client is aware of late charges, he or she will have a greater incentive to pay much faster.

4. Don’t offer Net 30 in the beginning

Perhaps the strictest, but also most effective, methods is to not offer Net 30 to clients you don’t have a relationship with yet.

Instead of offering these payment terms right off the bat, why not delay it until 3 or more invoices have been paid on time and without any problems.

That way, you and your client will have a good trust level so that you can offer Net 30 to him or her. Your client will be happy, and you will be satisfied knowing that your invoices will be paid on time.

With these four steps, you should be able to have your invoices paid on time on a regular basis. This will do great things for your freelancing business, and you will effectively prevent the negative parts of Net 30.

Good luck!