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Understanding Net 90 Payment Terms with Examples

Barbara Cook
By Barbara Cook
Barbara Cook

Barbara Cook

Barbara is a financial writer for Tipalti and other successful B2B businesses, including SaaS and financial companies. She is a former CFO for fast-growing tech companies with Deloitte audit experience. Barbara has an MBA from The University of Texas and an active CPA license. When she’s not writing, Barbara likes to research public companies and play Pickleball, Texas Hold ‘em poker, bridge, and Mah Jongg.

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Updated September 18, 2024
Early Payments
Payment Terms
Trade Credit

Suppliers may offer net 90 payment terms to customers. But these long tradeline terms, giving customers almost three months to pay their invoices, aren’t typically used by vendors in most industries. Instead, 2/10 net 30 terms are the business norm. 

What is Net 90?

Net 90 is a payment term from vendors letting approved trade credit customers pay invoices for purchases of goods or services in full, so vendors receive payments within 90 days. The 90 days invoice payment due date is generally counted from the invoice date unless otherwise indicated on the invoice. Net 90 payment terms may be combined with an optional early payment discount like 2/10 net 90.

Understanding How Net 90 Payment Terms Work

Net 90 vendors issue net-90 invoices to customers approved for credit, and suppliers include these invoices in their accounts receivable. Customers record these invoices as accounts payable. If customers pay the invoice balances in full, enabling vendors to receive customer payments within 90 days, they pay no interest on the trade credit. 

But vendors can charge a percentage of interest or add their standard late fees for late payments if that‘s included in the credit terms. Usually, they have a grace period before charging customers for late payments. 

Vendors may combine net 90 terms with an optional early payment discount. The customer can choose to pay the full amount per the net 90 terms. Or they can pay within the number of days stated in the early payment term, which lets them deduct a percentage discount of the invoice amount. 

When paying their vendor invoices electronically with ACH payments or other quick methods, the lag time between releasing the vendor payment and vendor receipt of that payment is short, meaning businesses can pay closer to the invoice due date. ACH payments go through the Automated Clearing House network of banks and credit unions that are Nacha members.

Paying vendors fast is especially useful to earn early payment discounts. 

Wholesale net 90 terms are possible, particularly for large corporate brands with financial strength. But your wholesale suppliers may only offer net 30, net 45, or net 60 payment terms as trade credit instead of the longer net 90 payment terms. 

Business Trade Credit Approval

Seeking trade credit approval, new customers complete online application forms on vendor websites or apply by phone. In its credit check, the credit department uses credit bureau reports and references from other vendors relating to customer payment history to decide whether to approve credit terms like 2/10 net 30, net 60, or net 90.  

Small businesses likely need to build business credit with vendors and earn strong credit scores before qualifying for net 90 credit. If they’re not approved for net 90 credit yet, they may need to:

  • Seek vendors with shorter payment terms like net 30 accounts, or
  • Pay upfront with electronic ACH payments from their bank account, or
  • Use credit cards to do business with a vendor.

Until they earn trade credit payment terms, startups and smaller businesses may need to provide personal guarantees from their small business owners. 

During challenging economic cycles, your customers can lose their customers. They may experience declining sales revenue and cash flow problems. Getting approved for long invoice payment terms like net 90 may not be possible. 

Suppliers don’t want to risk not receiving cash payments from uncollectible accounts receivable. The longer the invoice payment term, the greater the risk.

Standard Net Payment Terms, Including Net 90

Standard net payment terms suppliers offer to their customers on invoices include net 30, net 60, and less often, net 90. These payment terms mean vendors need to receive payment of the invoice balance by the invoice due date, which counts the number of days shown after the word net. 

Supplier Use of Invoice Factoring to Extend Trade Credit 

It’s possible to find a factoring company willing to factor invoices with long payment terms of net 90. But the cost and risk of factoring these invoices with payment dates of 90 days are high. Most factoring companies restrict factoring invoices to those with net 30, net 60, or shorter credit terms. These factoring companies use credit insurance companies to help them cover credit risks.

Payment Terms on Purchase Orders and Invoices

The final credit terms are accepted when vendors negotiate contracts and receive purchase orders from customers. These payment terms are shown on both the purchase order and the invoice. It’s useful to also show the invoice due date on an invoice.

With the widespread switch to electronic purchase orders (PO) and invoices rather than paper invoices, some systems can use a PO flip. The PO flip automatically creates an invoice from a digital purchase order, using much of the same data, including customer information, line items, pricing, and payment terms.

Seller Alternatives to Using Net 90 Credit Terms

Seller alternatives to using net 90 credit terms may be payable in advance (PIA) or COD (cash or collect on delivery), short-term net 7, net 10, net 15, net 30, 1/10 net 30, 2/10 net 30, net 45, or net 60. The number after net represents the number of days to pay an invoice in full. 

Net 90 Payment Terms Examples

Standard net 90 terms require that invoice balances are paid in full and received by the vendor within 90 days of the invoice date or another triggering event date indicated on the invoice. The invoice date is usually the shipping date. Examples of early payment discount terms are 2/10 net 90 or 2/20 net 90. To earn a 2 percent discount on the invoice balance, customers must pay within 10 or 20 days, depending on the credit terms.

Importance of Net 90 

Net 90 credit terms for invoices included in accounts payable are important. As a customer, you’re fortunate to receive these longer payment terms from your vendors. Trade credit is favorable for customer cash flow because they have longer to pay bills. And customers don’t incur interest expenses if bills are paid timely within the credit terms. 

Your company probably has a very strong credit score and negotiating power or participates in an industry traditionally offering net terms of 90 days.

Vendors offering net 90 payment terms to customer companies may generate more revenues. They should examine and forecast their cash flow and working capital before deciding to offer these longer payment terms. 

And these strong vendors need to approve only creditworthy customers and closely monitor and collect payments when invoices are due. Large or numerous uncollectible accounts receivable balances hurt profit margins.

How AP Automation Software Helps Suppliers Monitor Customer Payments

Modern AP automation and global mass payments software (integrated with the customer’s ERP or accounting software) lets vendors submit electronic invoices with credit terms to these customers through a supplier portal. Vendors can follow up automatically with the customers about their payment status when collecting accounts receivable. The AP automation software eliminates endless phone calls from vendors to collect accounts receivable. 

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