What are Net 30 Terms?
The term "Net 30" appears on an increasing number of transaction forms and invoices. Google the term "Net 30" and you will find a wealth of information regarding this simple, yet critical, term. The term is common in business transactions, but it might not be as common on non-profits’ invoices. In any case, it really is an essential provision for all sales and purchase agreements .
"Net 30" means that payment is due within 30 days of the date of the transaction or receipt of the invoice. The Net 30 payment terms are important because:
It is beneficial for both parties to ensure the payment terms are included on any invoice or sales/purchase agreement. The inclusion of this provision will hopefully promote buyer payment in a timely manner according to the standards.
Essentials of a Net 30 Agreement
A Net 30 terms agreement should include the clear wording of the payment terms. Essential details include the required invoice, the due date for the payment, interest penalties for late payments and any discounts for early payments that might apply.
Invoice
The company and customer should both have records of the agreement. A template invoice form can help, but it is not an absolute requirement of a formal legal agreement. It’s important, however, to have an accurate record of the sale and payment terms. General invoice terms are usually sufficient to refer to the Net 30 terms and payment amount. An example might read, "Payment Terms: Net 30. Due upon receipt of invoice." Without the specific dollar amount and the term "Net 30," a record of the agreement becomes vague and open to misinterpretation.
Due Date
The due date for payment should be clearly listed on the invoice. It is a good idea to spell out that the payment must be received by the due date, not just postmarked. The due date should also be calculated based on the invoice date, not "date of service." Unless the customer has pre-purchased a service, the service is performed at some time in the future. Not specifying the invoice date as the start date for the 30-day countdown could lead to an attempt by the customer to claim that the service date was late in the month, thus lengthening the payment terms to Net 31 or 32, or even Net 60. Clearly stating that payment is due 30 days from the date of the invoice protects you and the customer from confusion about the description and timing of services or products delivered.
Interest Penalties
If interest will be assessed for late payments, those terms should be clearly spelled out in the agreement and subsequent invoices. Usually, there are no issues on a late payment being the fault of the customer. Most companies find it essential to add a small but significant interest penalty. It’s best to have that penalty in the agreement and invoices. Although it has not been tested legally, verbal and visual agreement to interest penalties could be difficult to prove in court. The agreement should be explicit about when the interest penalty takes effect and how it is calculated. A simple example is listed below, but the calculator and exact wording used in your agreement is probably more advanced:
$500 x 0.005 = $2.50/day
If the penalty begins on the day after the due date, the total added to the amount due after 30 days late would be $2.50 x 30 or $75.00.
Early Payment
Some companies offer discounts for early payment, especially when they have cash flow issues to resolve. Some agreements use a combination of discounts and interest. An example is a discount of 5% if paid in 10 days and an interest penalty of 5% if paid 30 days late.
It’s important to remember that a Net 30 agreement does not start from the date of an invoice or a date of service, as discussed above. Instead, the agreement begins with the invoice date. Likewise, interest does not begin until the day after the due date. The right wording in the invoices can prevent misunderstandings. If an invoice is confusing or inaccurate, it could lead to disputes and loss of business. If you must have NB30 agreement terms, the details should be incorporated clearly and accurately into your invoices.
Legal Considerations for net 30 agreements
It’s Deceptive to Use Industry Norms as Your Template
When initially presenting your net 30 payment terms, it is going to be very straightforward to decrease your receivable days to 10 or 15 or another number that closely aligns with industry standards. And that’s not too bad; so maybe in the long run, you’re just fine to utilize them as such. The main concern is the enforcement of those payment terms once they are in place. In order to avoid a dispute, it’s very important to have a clear and completely accurate net 30 legal agreement.
Federal and state laws and regulations may not specifically address the use of Net 30 terms, but it is highly important that they be a part of your contract. This will help to ensure a common understanding and to avoid potential issues. As recent developments note, including California’s AB5 and Missouri’s new "Missouri Employment Law" and "Missouri Wage Statute," laws and regulations regarding worker classification and compensation are constantly changing. Therefore employers must stay abreast of legislative developments and the interpretation of them.
How to Customize an Agreement Template
While this agreement template for Net 30 Terms is a good basic starting point, it is not going to work completely for all businesses and industries. For that reason, you may want to make some modifications to it to ensure it fits your situation. Be aware, however, that you are on your own in regard to the changes you make to this document. We do recommend that you consult with your lawyer before making changes or using this document.
The Net 30 Terms Agreement template is intentionally heterodox to give you a general starting point. It is advisable to modify some of the clauses in the document if your industry makes certain allowances or is more flexible on certain issues. A lot of the confidentiality for example is dependent on whether or not you will be dealing with sensitive issues.
In addition to changing clauses and possibly adding them, consider that some clauses may need to be dropped altogether. If a specific contract clause is not applicable to your business, or just seems unusually irrelevant, you should be able to get away with dropping it.
The clauses may not be worded specifically for your business relationship. This is a general-purpose agreement template, after all. It is important to carefully read through the Agreement before finalizing it for your particular business relationship.
Common Errors in Net 30 Agreements
It is clear that you should follow the steps above to create the perfect Net 30 terms agreement template. However, it can also be just as easy to get it wrong, and ruin your own templates by omitting some of these factors. The most common mistake people make when they create their own template is not including a clear definition of late payment. If you do not define exactly when a payment is considered late, you might end up with people using the ambiguity to pay on their own schedule. It is always best to include a definition of a late payment, for example: "A late payment is any payment that is received after two weeks past the invoice due date." This way, you can start assessing the late fee immediately.
Another common mistake people make with their own template is to not include the right late payment fees . It’s very important that you’ve checked with your bank to make sure you have the right fee, and that you include it in your template.
If you are creating a Net 30 terms agreement the very first time in a business, then you may not think to go back to look at these templates frequently. It’s always helpful to go through your templates from time to time, and reassess to see if you can make improvements. For example, if you’ve recently changed your late fee structure, then your template should reflect that.
Sometimes businesses will leave out some of the legal protections that tend to be included in most contracts. If you don’t have your templates reviewed by a lawyer for best practices and legal ramifications, you might leave something important out. Make sure you have your template checked for the future, so that you don’t leave out any important information, and you’ve protected yourself against any future problems.
Advantages of a Template
Implementing a template for Net 30 terms agreement can save time, increase consistency, and lower the possibility of mistakes. When agreements already exist, time is saved by not having to create new ones from scratch. When using an agreement template, consistency is possible. The same agreement can be edited, saved, and used over and over with manual input. Provided that the basic information was inputted correctly originally and the document is saved in a central database, every employee with access should be able to find the document in the future. Updating the template to reflect any changes or improvements is done at one time. In this manner, the same agreement template is being used and no new agreements with possible inconsistencies are created. Mistakes are minimized using a template. An employee can check the template for errors, such as incorrect dates or amounts. The employee then saves and files the edited template as a new agreement. In this way, no change or damage has been made to the original template. If the employee finds an error or omission in the original template, he simply makes the necessary correction before filing the modified agreement for future use. Because agreements can be stored electronically, the documents are backed up for security. When a new agreement is needed, it can be easily copied and pasted into a new document. Information can be quickly changed and the new agreement can be printed or shared electronically. Whether using office templates or online templates, no effort is required to write out a new agreement. The only time invested is when the agreement is first created or whenever there is a use of a template to begin a new agreement. At time of need, any new information can be rapidly entered into a prewritten agreement. In this way, information does not need to be hand written. All changes and additions are typed during this process, rather than written out and possibly misinterpreted or transposed. The simple solution of a template for Net 30 terms agreement allows a person to get business done quickly and efficiently.
Where to Locate the Best Templates
Software Solutions
Businesses may also consider software options that include customizable templates for a variety of contracts, with net 30 terms typically among them. Both desktop software suites and SaaS are available. Some online legal services also provide access to legal software.
Business Consultancy Firms
Businesses could engage business consultancy firms that provide contract drafting services in exchange for fees. Quickbooks serves as an example of an online financial application that provides businesses with access to reputable law firms and independent contract lawyers. These service providers have expertise and experience with contract law and will be able to draft an agreement based on the requirements of a specific business . The activity can be discussed and negotiated right within the software. While it’s more expensive than a template, this method should leave business owners with the peace of mind that the terms meet current legal standards.
Freelance Websites
Online marketplaces such as Upwork and Guru provide them with access to a pool of independent and experienced lawyers who can draft a net-30 terms agreement template in exchange for a fee. By posting a job listing with a clear statement of work, the business can collect various quotes and quickly negotiate their terms. When selecting a missing piece of contract law advice, consider the pricing and reviews of each independent contractor.