Understanding Payment Terms on Invoice Example for Accounting

Payment terms on invoice example for Accounting

so what's the difference between net 30 net 60 and net 90. let's find out [Music] hey what's up everybody my name is don felker and welcome to the channel and here on this channel i talk about software development freelancing and how to start survive and thrive in the world of freelancing for software developers and today's topic is gonna affect your bottom line and that is what's the difference between net 30 net 60 and net 90. so let's just hop right into it the net 30 net 60 and net 90 are just payment terms now what they mean is that if you are going to submit your invoice on the first of the month so let's assume that you submit it on june 1st at that point you're going to get paid within the next 30 days so what that basically means is submit it june 1st and then the payment is going to be due on june 30th now typically how most corporations work is that they are going to wait to the very last moment to pay you so you should get your payment right around june 30th or maybe even a little bit after which that's a different topic so anytime you see net 30 realize that there is a 30 day lag that you're going to get paid now there's also other payment terms like i mentioned there's going to be net 60 net 60 is simply just a 60-day payment schedule so if you're going to submit your invoice on june 1st at that point you're now going to not get paid so right around july 30th now of course there's 31 days and certain months and so forth so i'm just using round numbers here but you kind of get the point and then we have the last one which is actually net 90 and net 90 means you're going to get paid 90 days after you've submitted the invoice that's a long time there's quite a bit of time lag between june 1st to all the way until august 30th when you might get paid think about that a little bit deeper the work that you do in maybe the month of may you're going to invoiced on june 1st so let's say you bill every 30 days therefore the work that you did back on may 1st if you have a net 90 payment cycle you're not going to get paid until possibly the end of august for the work that you did at the beginning of may this is very important to keep in mind because as new freelancers and consultants get started into the industry they need to make sure that they have a certain amount of funds saved up so you can kind of weather that initial storm of not getting paid for a few months as payment invoices get going think of this very much like a flywheel now there's two different types of approaches of payments when you're on a hamster wheel for example the hamster wheel just gets going and as soon as they hop off it stops think of that as getting paid on a weekly basis at your regular employer on the flip side if you're thinking about getting paid as a flywheel type scenario that's going to be something that takes a long time flywheels are heavy they take a while to get going that's very much similar to how you're going to get paid as a freelancer and consultant so which one would you like to get paid on now it would be great i imagine if you'd like to get paid every week for the work that you do however in freelancing and consulting it doesn't work that way you traditionally will perform all the work that you need to do in a given time frame and for me it's usually monthly that i will perform billing if i'm doing hourly based work and therefore i'm gonna get paid 30 to 60 to 90 days later you have to make sure that you have enough cash on hand to be able to weather that storm so the big question here is which one should you choose a lot of companies especially larger corporations are going to try to push you towards a 60 or 90 day net window and the reason for that is pretty simple now they're not going to admit to you why they do that there's many different reasons but in my theory the company gets to keep the money longer in their accounts and you have to realize this large corporations if they have a lot of vendors and they have to pay them there could be millions of dollars leaving their account if they can keep those millions of dollars inside an account for an extra 60 to 90 days they could gain interest think about it that's extra money that they just get to keep that is one major reason why a lot of these companies want to make sure that they're doing 60 to 90 days now there's also many other ones out there i'm not an accountant so i can't tell you all the specific reasons but in my experience that's been one of the major reasons so what i typically opt for is to push for a net 30 payment schedule i want to make sure that when i submit my invoice on june 1st it around june 30th i'm going to be getting paid each client i push for net 30 is very rare that i will accept a net 60 or net 90. now there's also other payment terms you can accept which is like net 15 that's getting paid every 15 days however those are quite uncommon the most common you're going to see are going to be the net 30 and at 60 and then that 90. so be aware of what the payment terms are in your contract and make sure that you're pushing for one that works best for you and if you're not sure i advise reaching for the net 30 as it's gonna be the most common and also get your money in your pocket sooner i hope that helps and i'll catch you next time [Music]