Net 30 Accounts for Startups
Whether you’re considering offering net 30 accounts to your customers or utilizing a net 30 vendor as a buyer, you should first understand what this type of trade credit means and how it works.
What Is a Net 30 Account?
Net 30 accounts are short-term lines of credit that can be offered by a net 30 vendor as a payment term for customers. Customers offered net 30 accounts must pay what is owed or settle their account balance within 30 days of receiving their invoice.
It is also common for net 30 vendors to offer net 45, net 60, or net 90 payment terms in addition to net 30 accounts. Or to break up their payment terms over the course of a longer period of time, requiring customers to pay a portion of their balance every 30 days, often referred to as 30-60-90 day terms.
Many buyers opt for net 30 accounts if they have a low or bad business credit score, as vendors offering net 30 payment terms may be more lenient than financial institutions such as banks in regard to business credit history. These accounts can provide customers with low business credit with much-needed resources to support their business while building their business credit at the same time.
Net 30 Accounts vs. Net 30 Vendors
The difference between net 30 vendors and net 30 accounts is that one issues the account, and the other is the account issued. The vendor offering net 30 payment terms is considered a net 30 vendor. The net 30 payment terms are what constitute a net 30 account.
How Do Net 30 Accounts Work?
Before offering a net 30 account, vendors may choose to check business credit history, however, it is not required. With net 30 accounts, buyers have 30 days from the time of receiving their invoice to settle their account. If the account is not paid in full within thirty days, interest is accrued.
Additionally, some vendors opt to incentivize early payment by offering a discount if paid in a shorter time frame. While the discount can vary from vendor to vendor, they follow the same general principle, here are a few common examples:
- 2/10 net 30 wherein the buyer receives a 2% discount if their account balance is settled in 10 days
- 1/15 net 30 wherein the buyer receives a 1% discount if their account balance is settled in 15 days
This incentivizes the buyer to pay their net 30 account balance as soon as possible and increases cash flow for the net 30 vendors earlier.
Recommended: Apply for a BILL Divvy Corporate Card to begin establishing your startup’s business credit.
How Do I Set Up a Net 30 Account?
Next, you need to find net 30 vendors or businesses offering net 30 accounts. A few well-known net 30 vendors are Uline, Supply Works, and Grainger Industrial Supply.
When you apply for net 30 accounts, the vendor will likely check your business credit history and may require you to have a business bank account and business phone number as well as meet time in business requirements.
Approval time for a net 30 account is typically between five to ten business days.
Net 30 Account vs. Business Credit Cards
Both net 30 accounts and business credit cards allow buyers to delay purchase payments and help build business credit. However, net 30 accounts typically offer a longer payment term than business credit cards.
As mentioned above, a net 30 account is paid within 30 days of receiving an invoice or extended over a longer payment period, such as 45, 60, or 90 days. It is also not uncommon for net 30 payments to be made late and can, at times, be more flexible. Credit cards, alternatively, must be paid on the due date, or they immediately accrue interest and late fees.
Furthermore, credit cards may require a high business credit score to qualify. While net 30 accounts usually require a business credit check, they can typically be used with bad or fair business credit. Moreover, net 30 accounts may even help businesses build business credit by reporting payments to credit bureaus.
Benefits of Net 30 Accounts
Whether you are planning to operate as a net 30 vendor or take on a net 30 account, there are benefits to pursuing this line of credit type, from business credit considerations to expanding your customer base.
Net 30 accounts hold several benefits for buyers, including:
- Capital for bad credit: These accounts offer payment terms for buyers with low and bad business credit, allowing them to access much-needed capital while they work on their business credit score.
- Build business credit: If your net 30 vendor reports your on-time payments to major business credit bureaus, a net 30 account will help you build your business credit over time.
Additionally, net 30 accounts provide several benefits to vendors as well, including:
- Widening customer base: By offering more flexible payment terms to customers and lower credit requirements, you may widen your customer base.
- Competitive edge: As some loans and lines of credit require high business credit scores and additional eligibility requirements, you may hold a competitive advantage by offering net 30 accounts.
- Reducing credit card fees: By opting to offer a net 30 account to customers, you reduce the amount of credit card fees your startup pays.
Drawbacks of Net 30 Accounts
While there are certainly benefits to taking on a net 30 account as a buyer, there are also a few disadvantages, from potentially high interest rates to increased risk. Here are the potential disadvantages of net 30 accounts you should keep in mind as a net 30 vendor or customer.
Disadvantages for net 30 account holders may include:
- Learning curve: If you’ve never used a net 30 vendor before, there may be a learning curve attached to taking on this type of account.
- High interest rates: This will vary depending on your net 30 vendors, however, some net 30 vendors require high interest rates or fees for any late payments.
There are also a few disadvantages for startups offering net 30 accounts to their customers:
- Delays cash flow: By allowing customers to pay 30 days after an invoice is issued, you are delaying payment and cash flow to your startup.
- Increased risk: If a customer doesn’t pay the invoice in the allotted time period, or at all, it is a liability to your business.
Is a Net 30 Account Right for Your Startup?
Determining whether to become a net 30 vendor or take on a net 30 account requires considering a number of factors, including business credit, risk and liability, and cash flow.
For net 30 vendors, offering a net 30 account can do several things for your business, including widening your customer base and giving your startup a competitive advantage. However, there is also risk involved in offering a net 30 account in the event that the customer doesn't pay on time or at all.
For net 30 account holders, there are a myriad of benefits, including low business credit requirements, the opportunity to build business credit, and delayed payment for much-needed business resources. However, if you aren't sure you will be able to pay your net 30 account on time, you may be subject to fees and interest.
Overall, before you offer or take on a net 30 account, you need to be aware of the benefits of a net 30 account and the potential risks you're taking on.
Frequently Asked Questions
What is a net 30 account?
A net 30 account is a trade credit or short-term line of credit offered by net 30 vendors. With this trade credit, buyers are able to delay payment for purchases up to 30 days from receiving the invoice. A net 30 account can be especially beneficial to buyers with low business credit or poor credit history.
Do net 30 accounts report to business credit bureaus?
While it isn't required, many net 30 vendors report payments to business credit bureaus, though some only report late or missed payments. If your net 30 vendor does report to credit bureaus, this can help build your business credit score as long as you make payments to your net 30 account on time.
What are the benefits of a net 30 account?
For buyers, a net 30 account provides a way to make purchases with delayed payment as well as improve their business credit if the net 30 vendor reports to business credit reporting agencies.
For vendors, offering a net 30 account can widen the startup's customer base, provide a competitive advantage, and potentially save on credit card fees.
Does a net 30 account help build credit?
If a net 30 vendor reports on-time payments to a credit bureau, a net 30 account can help improve the buyer's business credit.