Payment Terms

Payment terms are the contractual conditions governing when and how a buyer must pay a seller for goods or services, typically expressed as a shorthand notation indicating discount percentage, discount period, and net due date — such as 2/10 Net 30 (2% discount if paid within 10 days, otherwise full amount due in 30 days). Standard payment terms in B2B commerce range from Net 15 to Net 90, with Net 30 being the most common default. Payment terms are a strategic lever with material financial impact on both sides of the transaction: for sellers, shorter terms reduce DSO and improve cash flow but may reduce competitiveness, while for buyers, longer terms increase DPO and preserve working capital. The annualized cost of foregoing early payment discounts is substantial — a 2/10 Net 30 discount foregone represents a 36.7% annualized financing cost, making it more expensive than most commercial debt. Dynamic discounting platforms now enable sliding-scale discounts that adjust based on payment timing (e.g., 1.5% at 15 days, 1% at 20 days), optimizing the cost-of-capital equation for both parties. Industry-specific norms vary significantly: technology and SaaS companies commonly operate on Net 30–45 terms, construction and government contracts on Net 60–90, and retail/CPG on Net 45–60 with promotional deductions. Payment terms also interact with legal protections: the Prompt Payment Act requires federal agencies to pay within 30 days (with automatic interest for late payment), and several states have prompt payment statutes for commercial and construction transactions. Businesses should review and optimize payment terms annually, benchmarking against industry standards and negotiating based on volume, relationship tenure, and payment reliability.