When does "net" start?

[Sherry Lee]

Let's take "net 30". Does the clock start ticking when the order is placed, the order is invoiced, the order shipped or the day the order is received?

[Flintstone]

I would say 30 days from recieved or invoiced; whichever is later.

[Dermot]

I have been thought that it means 30 days from the date of the invoice and not 30 days from the end of the month.

I have to confess it is not a term of sale that I would be very optimistic of achieving in an orderly manner :rolleyes:

“Net” is the amount on the invoice that is due……no further discounting.

In Europe this issue is so out of control for small business that there is new legalisation making it a legal offence not to make payment in a timely manner due next year :eek:

Rgs

Dermot

[ 12-10-2003, 06:01 PM: Message edited by: Dermot ]

[Cliff Wilson]

Dermot is correct that "net" refers to the amount of the invoice not the date and the time criteria begins with the date of the invoice. So, "Net 30" means you must pay the full amount within 30 days of the invoice.

Net 15 -- Pay the full amount within 15 days.
2% 20/Net 30 -- Means you get 2% off the total invoice if you pay within 20 days of the invoice date, but you must pay the full amount (Net) within 30 days of the invoice date.

Technically, they should not invoice you until the date the product is shipped or later. If you are getting invoices before the product is shipped, you have a legitimate complaint. Invoice is for product shipped and (in most cases) revenue credited to the books. They can't take revenue credit until it is shipped.

Years ago, I worked for a company that would fill the trucks and park them in the parking lot at the end of the quarter so they could say they "shipped" the product. legal, but sleazy.

[ 12-10-2003, 06:32 PM: Message edited by: Cliff Wilson ]

[Jim A]

Cliff's explanation is absolutely correct. But some large company who receive the goods start counting when they receive the merchandise. Usually large chains.

[Sharonx]

I was an accounting manager before retiring to framing. We considered NET 30 to mean payment was due 30 days from the date of the invoice. That is how I still pay my vendors. I know some large companies who pay 30 days from receipt of merchandise. If I had a vendor who was really bad at getting invoices out way ahead of delivery, I would contact them and explain that I would be paying 30 days from receipt of merchandise.

[Jim Miller]

Someone out there must be wondering, why "net" 30? That term is used because the amount on the bill may go up or down, depending on when you pay it.

Most suppliers charge some fee for late payments. Likewise, many suppliers also offer "cash discounts" for quick payments. For example, the terms might be shown as "2% 10 days, net 30. Late fee 1% per month or fraction thereof".

The charges added to, or subtracted from, your accounts payable affect your net profit just like retail price increases or discounts do.

If you pay late and suffer the add-on fees, you are hurting your bottom line terribly. Stop that.

When a supplier offers a discount for prompt payment, earn it if you can. Taken consistently, a 2% discount on COGS amounts to a much greater addition to your bottom line.

For example, depending on your profit rate, earning those "cash discounts" consistently could amount to about 25% more net profit at the end of the year.