What it means
When you buy goods or services on Net 60 terms, you do not need to pay immediately. Instead, the supplier issues an invoice, and your business has 60 days to settle the bill.
This practice is common in business-to-business commerce, where companies need time to process invoices, check deliveries, and generate their own revenue before paying suppliers. Offering or accepting these terms involves a trade-off.
For buyers, it preserves vital cash for other operational needs. For suppliers, offering 60 days to pay can attract larger corporate clients who demand extended terms, but it also creates a significant gap between delivering work and receiving money.
Because cash is tied up for two months, suppliers must ensure they have enough working capital to cover their own expenses, such as staff wages and rent, while waiting to be paid. Managing this gap carefully prevents cash flow crises.
Net 60 is like borrowing a library book for two months. You take the item home immediately to use, but you do not have to return it, or in this case pay for it, until sixty days have passed.
In practice
Real-world examples
Example 1
A freelance designer sends an invoice for $3,000 on 1 January with Net 60 terms. The client keeps the money in their bank account and makes the full payment by 2 March. For those two months the designer has done the work but has not yet been paid.
Example 2
A catering business delivers food for a corporate conference on 1 May. Under a Net 60 agreement, the client company processes the payment and clears the $4,500 invoice by 30 June. The caterer has already paid for ingredients and staff, so it carries the cost for the full two months.
Example 3
A manufacturing firm orders $10,000 worth of steel parts on 15 September. The supplier grants Net 60 terms, allowing the manufacturer to build and sell its products before paying on 14 November. The supplier has effectively lent the manufacturer $10,000 for free during that period.
Think of it
Net 60 is like borrowing a library book for two months. You take the item home immediately to use, but you do not have to return it, or in this case pay for it, until sixty days have passed.
Formula
Calculation
Payment Due Date = Invoice Date + 60 Days
Worked example: an invoice is dated 10 March. Counting 21 days to 31 March, 30 days to 30 April and 9 days into May gives 21 + 30 + 9 = 60, so the payment due date is 9 May.
Net 60 can also carry an early payment discount, written as 2/10 Net 60. On a $10,000 invoice, paying within 10 days earns a 2% discount of $200, so the buyer pays $9,800. Paying 50 days early to save $200 on $9,800 is a return of 2.04% over 50 days, about 2.04% x (365 / 50) = 15% a year, which is well above what most savings accounts pay, so buyers with spare cash often take it.Case study
Seen in the real world
This is a fictional, illustrative scenario. GreenSprout, a small company supplying organic office snacks, landed a major contract with a national retail chain. The retailer insisted on Net 60 payment terms. GreenSprout delivered $15,000 worth of goods in January.
Because their suppliers required payment within 30 days, GreenSprout faced an immediate cash crunch. They had to pay their farmers and packers in February, but the retailer would not pay until late March. To survive the gap, GreenSprout secured a small bank overdraft, using the unpaid invoice as security. While the large contract boosted annual revenue, the 60-day wait taught the founders a harsh lesson about working capital.
They realised that sales growth does not equal cash in the bank, and they subsequently negotiated shorter payment terms for future smaller clients to keep their bank balance healthy. The overdraft was not free. If GreenSprout's farmers and packers cost $9,000 and it borrowed that sum for 30 days at 12% a year, the interest was about $9,000 x 12% x 30 / 365 = $89. That is small next to the $15,000 invoice, but the real danger was the timing: without the overdraft, the business could not have paid its suppliers on time.
Watch out
Common mistakes
- Treating Net 60 as 60 business days rather than 60 calendar days.
- Forgetting to check if your own business cash flow can survive a two-month wait for payment.
- Failing to issue invoices promptly, which accidentally extends the waiting period even further.
Questions
People also ask
Does Net 60 include any discounts for early payment?
Not automatically. Standard Net 60 simply means full payment is due in 60 days. However, suppliers sometimes combine it with a discount, such as 2/10 Net 60, which offers a 2% discount if paid in ten days.
What happens if a customer pays after the 60 days?
Suppliers often charge late fees or interest on overdue balances, provided this was agreed in the initial contract. Consistently late payments can also damage your credit rating with that supplier.
Why would a small business agree to Net 60 terms?
Many large corporations and government bodies refuse to buy goods unless suppliers accept extended payment terms. Small businesses often agree to Net 60 to win lucrative, high-volume contracts.