Net Terms & Trade Credit: The Ultimate Guide for Business Owners

Does this sound familiar? You sell a large order of materials to a contractor or retailer using net terms and send out a net 30 invoice – only to wait 60, 90, even 120 days to get paid. Meanwhile, the trade credit you've extended stretches your cash flow thin, bills pile up, and your team spends evenings chasing payments.

Take Nathan, for example. Nathan runs a custom flooring materials company with a small team. He often vents about "playing bank" for his customers: fronting tens of thousands of dollars in goods on net terms and then waiting months for cash.

"We're not a bank, but we end up financing our customers' projects," he says. "I lose sleep worrying if late payments will leave us without enough to pay our own suppliers and crew.

But if I don't offer net terms, my customers will go to a competitor. It feels like a no-win situation."

The Net Terms Challenge: $3.1 Trillion Locked in Unpaid Invoices

If you see yourself in Nathan's frustrations, you're not alone. Over $3.1 trillion is currently stuck in unpaid B2B invoices across America. Nearly every business is tied to this massive "net terms economy," where cash that should power growth instead sits in accounts receivable limbo.

The statistics paint a troubling picture:

• 43% of all B2B transactions rely on net terms
• A shocking 93% of businesses received late payments in the past year
• Construction companies wait an average of 83 days on "Net 30" invoices

But what if offering net terms didn't have to strangle your cash flow? What if you could extend generous payment terms to help close more business, and still get paid immediately? What if your business credit terms could actually help grow your business instead of holding it back?

In this comprehensive guide to net terms and trade credit, we'll examine the challenges and history of traditional net terms and then introduce you to a transformative solution that's changing how businesses handle trade credit.

What Are Net Terms and Trade Credit?

Net terms refer to payment deadlines in business transactions, typically expressed as "net X" where X is the number of days the buyer has to pay. Common examples include:

• Net 30: Payment due within 30 days of invoice date
• Net 60: Payment due within 60 days
• 2/10 Net 30: 2% discount if paid within 10 days, otherwise full payment due in 30 days

Trade credit is the practice of allowing customers to receive goods or services now but pay for them later – essentially a "buy now, pay later" arrangement for B2B customers. This centuries-old practice helps businesses build relationships and close larger deals by offering flexible payment options.

Together, these practices form the foundation of B2B commerce, but they also create significant challenges for the businesses extending credit.

You're Already Offering Credit (Whether You Realize It or Not)

Anytime you complete work or deliver value before receiving payment, you've extended credit to your customer. This invisible financing isn't limited to construction or wholesale—it affects service businesses, creative professionals, and technology providers alike.

Many businesses extend credit without even recognizing it. If you're a photographer delivering finished photos before receiving payment, a SaaS company invoicing clients after they’ve already accessed the service, a consultant billing upon project completion, or a marketing agency charging for campaigns after they run—you're effectively extending credit.

The challenge is that while you might not think of yourself as being in the "credit business," you're still experiencing all the cash flow strain and payment uncertainty that comes with it.

Why Traditional Net Terms Are Broken

Cash Flow Delays Starve Growth

When you extend net terms, you wait weeks or months to collect revenue for sales you've already fulfilled and costs you've already incurred. Meanwhile, your own expenses – supplier bills, payroll, rent, equipment – don't wait.

The impact of these delays is severe and well-documented:

• 64% of small businesses get paid late, according to research
• 23% can't invest in new equipment or hire when needed due to cash flow constraints
• 17% struggle to build inventory for upcoming seasons or opportunities
• 27.5% of firms that receive mostly late payments end up paying their own suppliers late

When too many customers pay late or push beyond their terms, you may be forced to seek external financing just to stay afloat – essentially incurring debt to cover your customers' debt to you. This completely undermines the purpose of offering net terms, which was to gain sales, not to end up taking loans to cover operational costs.

You're Acting Like a Bank (Without Banking Resources)

The moment you offer net terms, you become a de facto lender. You might not think of your company as a finance business, but 60% of small businesses depend on trade credit from suppliers – making supplier-provided credit the second most common form of small business financing after bank loans.

This forces you to handle complex financial processes:

Credit checks & applications

Before selling on terms, you're likely running credit reports, collecting references, and possibly reviewing financial statements. This is time-consuming and requires specialized knowledge that your lean team may not have.

Setting up accounts

You must draft credit policies and agreements, determining details like whether terms start from invoice date or delivery date, whether to offer early payment discounts, and whether to charge late fees or interest.

Tracking and managing invoices/collections

Once credit is extended, someone has to track every invoice, send reminders, make calls, and hope customers actually pay on time. If they don't, you must escalate to collections procedures, which could mean more calls, formal demand letters, or even legal action in extreme cases.

All this effectively turns your business into a mini finance company to support your sales. But unlike a real bank, you don't have a full credit department, sophisticated risk models, or capital buffers to absorb losses. Every hour spent vetting customers or chasing invoices is an hour not spent on growth-focused work.

This administrative burden grows as you scale. As your customer base increases, so does the risk of late payments – nearly 55% of businesses with 500+ customers report that over a quarter of their invoices come in late. For a lean operation, managing this growing credit function becomes increasingly unsustainable.

Late Payments and Defaults = Real Losses

Extending net terms always carries the risk that you might not get paid at all. Every business owner who's been stiffed by a customer knows how devastating a default can be. You've delivered the product or service, incurred all costs, and the payment never arrives – or comes months late after countless excuses.

This risk isn't negligible. Customers may delay or fail to pay due to their own cash flow problems, disputes about products or services, or sometimes sheer mismanagement. When extending credit broadly, a certain percentage of sales will inevitably turn into collections issues or bad debt write-offs.

Consider the toll this takes:

Stress and relationship strain: Confronting a late-paying client – especially one you've had a long relationship with – is agonizing. It puts you in the uncomfortable position of chasing money while trying to preserve the business relationship.

Cost of collections: If you pursue a seriously delinquent account, you might hire a collection agency (which typically takes 25-50% of the recovered amount) or resort to legal action. Both options are costly and time-consuming. Often, by the time an invoice is 90+ days overdue, the likelihood of collecting in full drops dramatically.

Bad debt hits your bottom line: Every dollar of bad debt is a dollar less of profit. If you operate on a 10% margin, a $10,000 invoice that goes bad erases the profit from $100,000 in successful sales. A couple of defaults can wipe out months of earnings.

Even if customers eventually pay late, the uncertainty and delay wreak havoc on your planning. And if you suspect a customer might default, you face a tough choice: keep supplying them (risking a bigger loss) or cut them off (losing future business).

Hidden Costs: Discounts and Complexity Erode Margins

To speed up sluggish payments, many businesses offer early payment discounts like "2/10 net 30," meaning the buyer gets a 2% discount if they pay within 10 days (otherwise full payment is due in 30 days).

While a few percentage points might not sound like much, think of it this way: a 2% discount effectively means you're paying a 2% fee to get your money in 10 days instead of 30. Annualized, that's a hefty cost of capital.

Additionally, offering different terms to different customers complicates your accounting. You need to track who is eligible for what discount and whether they paid in time to earn it. Mistakes can lead to awkward conversations or lost revenue.

In summary, offering net terms has many hidden costs. It can starve your cash flow, consume your time, introduce credit risk, and chip away at your margins. It's an antiquated system straining under the demands of modern business.

Trade Credit and Construction: The 83-Day Payment Nightmare

The construction industry suffers from some of the slowest payments of any sector. You might issue an invoice on net 30 terms, but the reality is you could be waiting well beyond 30 days – often 60, 90, even 120+ days – to actually get paid.

The data paints a stark picture:

• Construction companies average 83 days to receive payment, despite typical contract terms of net 30
• Payment delays cost the construction industry an estimated $280 billion in 2024
• 82% of contractors now face payment waits over 30 days, up from just 49% in 2022

Several factors contribute to these extreme delays:

"Pay-when-paid" clauses: Many subcontracts stipulate that subcontractors get paid only after the general contractor has been paid by the client/owner. This pushes the waiting down the chain. If an owner takes 90 days to pay the GC, the subs might not see money for 100+ days.

Draw schedules and retainage: Payments often come in installments (draws) tied to project milestones, with a percentage withheld (retainage) until the very end. This means contractors are always fronting some work/materials without full payment until project completion.

Complex approval workflows: Invoices in construction may need sign-off from multiple stakeholders – project managers, finance departments, client representatives. One missing signature can hold up a whole batch of payments.

Disputes and change orders: Longer payment cycles increase the chance that issues will arise before payment. A client may delay paying until disputes are resolved, further extending the wait.

For construction businesses, the result is painful. Cash flow is interrupted so severely that many contractors resort to credit lines to cover delayed payments. Some even tap personal funds to keep crews paid and projects moving. And because cash is king in construction, companies are often unable to take on new projects if payment for the previous one hasn't arrived – meaning missed growth opportunities.

How Net Terms Affect Wholesale & Distribution Businesses

If you're in wholesale or distribution, you likely deal with net terms as a standard practice with your retail or contractor customers. Wholesale is all about volume – you might have dozens or hundreds of customers ordering regularly.

Key challenges for wholesalers offering net terms include:

‍Many customers = many credit accounts: Unlike construction where a contractor might have a handful of large projects at once, a wholesaler could be managing credit for 100 small hardware stores simultaneously. The administrative load of keeping on top of all those accounts receivable can overwhelm a small staff.

‍Risk scales with volume: As your customer count grows, so does the likelihood of encountering late payers or non-payers. With studies showing 55% of companies with 500+ customers report over 25% of payments are late, a wholesaler serving hundreds of buyers will inevitably face a constant stream of late receivables.

Razor-thin margins: Many distribution businesses operate on thin profit margins (perhaps 5-10%). That leaves very little room for error with credit losses or financing costs. You can't easily pad prices to cover these costs because competition is fierce and customers are price-sensitive.

Credit holds and lost sales: Wholesalers often have to enforce credit limits. If a customer hits their limit or goes past due, you face the tough choice of putting them on hold – refusing new orders until they catch up. This is necessary to control risk, but it also means potentially losing sales or straining relationships.

Seasonality and large orders: Your customers might place very large seasonal orders, creating spikes in your accounts receivable. Can you afford to extend an extra $100,000 in credit for a seasonal stock-up? If not, you might lose that business to a competitor willing to take the risk.

In wholesale, offering net terms helps drive sales volume – your buyers can purchase more stock without immediate cash outlay. But it also means you constantly finance your customers' inventory. If your average Days Sales Outstanding (DSO) creeps up to 45 or 60 days, that's effectively like having a perpetual loan out to your customers equivalent to two months of sales.

Traditional Solutions and Why They Fall Short

When faced with the challenges of net terms, businesses have traditionally tried several approaches:

Bank financing or lines of credit: Borrowing money to fill the gap is common – using a revolving line of credit secured by your receivables, for example. This can help smooth cash flow, but it adds interest costs and debt to your balance sheet without fixing the underlying issue.

Invoice factoring or financing: Selling your invoices to a factor or using a platform to get an advance (often 70-90% of invoice value) immediately. This gives quick cash, but factors can be expensive, and your customer may now be dealing with a third party for payment, which can be awkward.

Credit insurance: Insuring your receivables against non-payment protects you from bad debt, but it doesn't solve slow payments. Insurance might pay out only after an account is declared a default after many months. It's also an added cost and claims can be complex.

Software tools: New software products have made it easier to manage the process of net terms through digital invoices, automated reminders, and integration with financial data. These tools reduce administrative overhead but don't solve the cash flow timing issue – you're still waiting for customers to pay.

Financing solutions: Some companies offer lines of credit against invoices or advance payments for invoices. This puts money in your pocket sooner, but it's still debt you're taking on, and these services typically have credit limits that may not cover very large invoices.

While each of these approaches can help around the edges, none eliminate the fundamental trade-offs. Wouldn't it be better if you could offer net terms generously to win business, get your cash right away, avoid adding debt, and not have to chase payments yourself?

How Net Terms Advance is Modernizing Trade Credit

Traditional approaches to managing net terms often fall short. Bank lines of credit add debt to your balance sheet. Factoring can be expensive and awkward. Credit insurance protects against default but doesn't solve slow payments. Even modern invoicing software, while improving the admin process, still leaves you waiting for payment.

What businesses truly need is a comprehensive solution that addresses all aspects of trade credit: risk assessment, cash flow, collections, and compliance—without creating new problems in the process.

This is where Nickel's Net Terms Advance™ changes everything.

Founded by a team of veteran entrepreneurs with deep expertise in payments and industrial B2B, Nickel was created with one mission: to empower small businesses. The founders have seen firsthand how critical cash flow is—the lifeblood of every business—and they're passionate about making it easier for businesses to thrive. By taking cutting-edge financial technology once reserved for Fortune 500 companies and tailoring it specifically for small businesses, Nickel has created tools that simplify payments, improve cash flow, and unlock growth for the companies that drive our economy.

Net Terms Advance reimagines how B2B payment terms work in today's digital economy, giving businesses the best of both worlds: the ability to offer attractive payment terms to customers while maintaining immediate access to their cash. Unlike partial fixes that tackle just one aspect of the net terms challenge, Net Terms Advance transforms the entire process from credit approval through payment and beyond.

Let's see what this looks like in practice through the experience of a real business owner.

Before vs. After: A Real-World Example

Nathan, a building supplies distributor, never offered more than net 15 to customers and insisted on upfront payment for large orders. This cost him at least 15% of potential deals. For the net terms he did offer, he personally reviewed credit applications and spent hours weekly chasing payments, occasionally suffering losses from defaults.

Nathan now confidently offers Net 60 terms to ALL qualifying customers – even new ones. With Nickel's Net Terms Advance™ program:

• He gets paid upfront (95% of invoice value) for every sale, risk-free
• Nickel handles credit approval instantly using real-time data
• Customers get up to $250,000 in purchasing capacity on net 60
• If customers don't pay, Nathan keeps the funds – Nickel absorbs the loss
• Nickel automates invoicing, reminders, and collections
• For construction clients, Nickel handles lien notices and compliance requirements

The results have been transformative:

• Cash in 1 day vs. 60+ days
• Sales increased by 15% or more
• Zero bad debt
• 5-10 hours per week of administrative work eliminated

How Nickel's Modern Trade Credit System Works

Nickel modernizes trade credit through several key innovations:

1. Fast, Intelligent Credit Decisions

Nickel uses advanced data (real-time financial data, business credit info, AI-driven analysis) to underwrite buyers in minutes, not days. This means you can convert a new customer on Monday and offer them net terms on Tuesday, with confidence. The system dynamically assesses risk so the credit offer can adjust as market conditions change or as your buyer grows.

2. Upfront Financing (Net Terms Advance™)

This is the core benefit: Nickel pays you right away on your invoices (95% of the value). It's not a loan to you; it's effectively them buying the invoice with no recourse if the customer doesn't pay. You get the liquidity without debt on your balance sheet.

3. Higher Approval Rates, Larger Orders

Because Nickel is sophisticated in risk assessment, they often approve credit lines for customers that you might have been cautious about. Nickel can safely allow a customer to buy $100,000 on terms where you may have capped them at $30,000 on your own. With approvals on invoices up to $250,000, you can comfortably take on even very large orders.

4. Fully Managed Collections & Compliance

Nickel manages the back-end collections with customers in a professional manner. Automated reminders, escalating emails or letters, phone calls from their team if needed – all happen without you doing it. For construction clients, Nickel handles lien notices and even filing liens if necessary, as well as adhering to all debt collection laws. Your relationship with customers stays positive because any hard conversations about late payment are handled by Nickel's system.

5. Integrated Payments & Accounting

Nickel is a unified payments platform that can handle payment processing (ACH, wire, etc.) and integrate with your accounting software. When a customer pays Nickel, it can reconcile seamlessly with your books. No more matching checks to invoices by hand. Everything lives in one dashboard.

6. Designed for Lean Teams

The platform is straightforward to use, with no steep learning curve. If you can use common invoicing software, you can use Nickel. By taking over the heavy lifting, Nickel frees your team to focus on growth. One person can manage the whole credit program through Nickel with minimal effort.

7. Flexible for Buyers

Buyers get a modern portal to see their invoices and can choose to pay early or on time. The system is transparent and digital, ensuring that adopting Nickel doesn't introduce friction for your customers – in fact, it likely improves their experience of buying from you.

8. Scalability

As your business grows, Nickel grows with you. Whether you have 10 invoices a month or 10,000, the process remains the same. If you expand to new states or product lines, you don't have to re-invent the credit process; Nickel has it covered.

Transform Your Business with Net Terms Advance

Net terms don't have to create cash flow nightmares. With Nickel's modern trade credit platform, you can:

• Offer "buy now, pay later" terms that customers love
• Get paid immediately for every sale
• Eliminate bad debt and collections headaches
• Focus on growth instead of chasing payments

Imagine what your business could achieve with reliable cash flow not tied up in accounts receivable, no more bad debt write-offs, freedom from collections work, and the ability to confidently take on large orders.

Small businesses across construction, wholesale, and other B2B sectors are already using Nickel to transform their finances and operations. They're closing bigger deals faster, strengthening customer loyalty, and fueling growth with their own unlocked cash.

The next step is simple: schedule a personalized demo to see Nickel in action for your specific business. During a 30-minute walkthrough, you'll see the dashboard, the ease of setting up new customers with net terms, and how quickly you can get paid on invoices.

Take control of your cash flow, delight your customers, and empower your team with a net terms / trade credit solution tailor-made for businesses like yours.

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