Net 30 vs Net 60: What Waiting to Be Paid Actually Costs
Net 30 means the full invoice is due 30 days after the invoice date; net 60 means 60 days. The difference between them is a loan you make to your client, and you can price it. In the illustrative example below, an $8,000 invoice with money costing you 12% a year costs $78.90 to wait for at net 30 and $157.81 at net 60 - a gap of $78.90. The early-payment discount offered to avoid the wait is a different story: 2/10 net 30 works out to 37.2% a year, far more than the wait it replaces.
Net 30 meaning, and the other terms
- Net 30 - pay the full amount within 30 days of the invoice date.
- Net 60 - the same, within 60 days. Net 45 and net 90 follow the same pattern.
- 2/10 net 30 - the buyer may take 2% off if they pay within 10 days; otherwise the full amount is due at day 30.
Contracts differ on when the clock starts (invoice date, delivery, or month end) and whether days are calendar or business days. Read your own terms; the arithmetic below assumes calendar days from the invoice date.
The formula: a payment term is a loan
cost of waiting = invoice x annual cost of money x days / 365
“Cost of money” is whatever money costs you: the interest on a credit line or card you carry while you wait, or what the cash would earn if you had it. It is an input you choose, not a market figure. This is simple interest, which is the right model for a single wait of a few weeks.
Worked example: net 30 vs net 60 terms
Illustrative inputs: an $8,000 invoice and a 12% annual cost of money.
| Terms | What the wait costs | Share of the invoice |
|---|---|---|
| Paid on delivery | $0.00 | 0.00% |
| Net 14 | $36.82 | 0.46% |
| Net 30 | $78.90 | 0.99% |
| Net 45 | $118.36 | 1.48% |
| Net 60 | $157.81 | 1.97% |
| Net 90 | $236.71 | 2.96% |
Each day of waiting costs $2.63, so the cost is a straight line: net 60 costs exactly twice what net 30 does. At 1.97% of the invoice, net 60 is cheaper than it sounds when a client first proposes it.
The cost depends heavily on your cost of money, so here is the same invoice at three illustrative rates:
| Cost of money | Net 30 | Net 60 | Gap, net 30 to net 60 |
|---|---|---|---|
| 6% a year | $39.45 | $78.90 | $39.45 |
| 12% a year | $78.90 | $157.81 | $78.90 |
| 24% a year | $157.81 | $315.62 | $157.81 |
At 24%, net 60 costs $315.62, or 3.9% of the invoice. At 6% it is half the 12% figure. If you do not have to borrow while you wait, your cost of money is closer to what the cash would earn sitting in an account. To see whether a longer wait leaves your bank balance short in a given month, build a cash flow forecast.
Why “under 2%” still matters: measure it against profit
Measured against the invoice, net 60 looks like a rounding error. Measured against what you keep, it is not. Suppose the job earns an illustrative 15% profit margin, so $1,200 of the $8,000 is profit. Then:
- net 60 costs 13.2% of the profit on the job, and
- moving from net 30 to net 60 alone costs 6.6% of it.
The thinner your margin, the bigger this share gets, because the cost of waiting is charged on the whole invoice while your profit is only a slice of it. That is the useful way to frame net 30 vs net 60 when you decide whether to accept longer terms: not “1.97% of the invoice” but “what share of my profit on this job”.
2/10 net 30: the annualized cost of the discount
An early-payment discount looks like a small concession. Priced as a rate, it costs far more than the wait it avoids. With 2/10 net 30, a client who pays on day 10 instead of day 30 gets 2% off for paying 20 days early.
annual rate = d / (1 - d) x 365 / (days to net - discount days)
Why d / (1 - d) and not just d? Because you give up 2% of the invoice to receive the other 98% early. Per dollar actually received, the charge is 2.041% for 20 days. There are 18.25 periods of 20 days in a year, so:
- simple annual rate: 37.2%
- compounded, if the deal repeated all year: 44.6%
In dollars, on the same $8,000 invoice at a 12% cost of money: the discount gives away $160.00 (you receive $7,840.00), and being paid 20 days sooner saves $51.55 of financing. Taking the trade loses $108.45 against simply waiting until day 30.
From the seller’s side, offering 2/10 net 30 is borrowing from your client at 37.2% a year. From the buyer’s side, it is the mirror image: paying early earns a 37.2% annual return, which is why a buyer with spare cash has a strong reason to take it.
The non-obvious part: what the discount replaces
The annual rate of a discount depends entirely on how many days it buys. The same 2% looks very different depending on which payment date it replaces:
| Terms | Discount | Days it buys | Annual rate (simple) | Annual rate (compounded) |
|---|---|---|---|---|
| 1/10 net 30 | 1% | 20 | 18.4% | 20.1% |
| 2/10 net 30 | 2% | 20 | 37.2% | 44.6% |
| 2/10 net 45 | 2% | 35 | 21.3% | 23.5% |
| 2/10 net 60 | 2% | 50 | 14.9% | 15.9% |
| 3/15 net 60 | 3% | 45 | 25.1% | 28.0% |
This matters in a real negotiation. If a client on net 60 asks for 2% to pay on day 10, the discount buys 50 days, not 20. The rate drops to 14.9% a year - less than half the 2/10 net 30 figure. At a 12% cost of money it still loses, but only $31.12 (the early payment saves $128.88 of financing against the $160.00 given away).
So there are two easy mistakes. One is to treat net 60 as a disaster when it costs $157.81. The other is to give a 2% discount to avoid that wait without noticing that, against net 30, it costs 37.2% a year. Waiting is the cheap half of this; the discount is the expensive half.
How to run this on your own numbers
- Pick your cost of money honestly: the rate you pay on whatever you borrow while you wait, or what the cash would earn if you are not borrowing.
- Cost of waiting = invoice x that rate x days / 365.
- Divide it by your profit on the job, not just by the invoice.
- For any discount offer, work out the days it actually buys, then d / (1 - d) x 365 / days. Compare that rate with your cost of money.
- If the discount rate is higher than your cost of money, the discount costs more than the wait.
How these were calculated
The cost of waiting is invoice x annual cost of money x days / 365 (simple interest). The annualized cost of an early-payment discount is d / (1 - d) x 365 / days bought, where days bought is the full term minus the discount window; the compounded figure is (1 / (1 - d)) raised to the power 365 / days bought, minus 1. Every figure on this page was computed twice: once by the code behind the product below, and once by an independent program that adds up a day of interest at a time and derives the discount rate from the amount received early. The two agree to the cent. The invoice, the cost of money and the profit margin are illustrative inputs, not typical figures. None of this is legal or financial advice; have payment terms in a contract reviewed by someone qualified where you work.
If you want to run these sums on your own invoices, the kit below has a spreadsheet for the cost of terms and of a discount, plus revision and kill-fee math and scripts for proposing terms and declining a discount request.