Net 30 can be the bane of a freelancer’s career. For some reason, it has become commonplace for small businesses around the world, but how this affects freelancers?
What is net 30?
Net 30 as a term means that payment is due 30 days after you send your clients the invoice. Now, from the definition, you can see that net 30 payment terms can be very good for a client. Why? Net 30 is essentially a 30-day credit without any repercussions for the client, but it can be terrible for freelancers.
In this article, we’ll cover why freelancers should probably avoid Net 30 terms and the very few occasions in which independent professionals might actually consider it.
Why Net 30 is bad for freelancers
1. It hurts your budget
First and foremost: you’re not a bank. As a freelancer, you’ll be rarely sitting on a huge pile of money you can just give out to people and afford to wait for them to pay you back. And you’re not a crazy bank that for some reason gives out loans without interest.
Small businesses, which the vast majority of freelancers qualify as cannot afford to wait one month for a payment. You have regular financial obligations that you need to cover.
Think of yourself as a grocery store – you can’t just buy a piece of bread and pay for it thirty days later. No, you need that payment as soon as possible, because you have to order new bread, pay your employees, etc. In your case, that’s paying your bills, investing in your education, and much more.
Don’t get me wrong. Paying a bill takes time for your client – you can’t expect it to always arrive on the next day. But 30 days is just too much – 7 calendar days is a much more reasonable term.
2. Clients will tend to pay at the very last second
It is an unfortunate reality that telling a client “pay me in 30 days max” will often result in them paying you in 30 days at the earliest.
Doing something at the very last time can be attributed to laziness, but it can actually be a profitable financial decision from the perspective of your client. Assuming they are a bigger business, they stand to gain an advantage from paying you later.
Net 30 allows clients to keep their cash longer, which accounting-wise can improve cash flow.
Furthermore, imagine an actual delay if you expect your payment in 30 days. Not only have you waited an entire month after you did your job to get paid, now you’ll have to wait even more.
If you had worked with Net 10 even the biggest of delays wouldn’t probably be as bad as your Net 30 payment term.
3. There’s often confusion about when Net 30 begins
Net 30 is not as clear-cut of a term as you might think it is. There are various options of where it begins. In general, it will begin from the date when the invoice is issued.
However, some clients might not know that. They will think the 30 days begin from when they actually receive the invoice. Even worse – imagine your client working for an even bigger client: They might consider the beginning of Net 30 to be once they get their payment themselves.
How do you protect yourself from that chaos?
Just sit down with your client when you’re figuring out your contract and agree on the terms – don’t forget the 5 must-have clauses for any freelance contract – or include an explanation in the contract. Regardless of whether you’re giving them 30 or 10 days to pay, that’s a smart thing to do.
When should you Consider Net 30 as a freelancer
There are few times when Net 30 can make sense as a payment method for you.
1. When you can afford it
One of those times is when you can really afford it – there are basically two possibilities here.
- Number one: The project and thus the payment is so small that it won’t make a difference in your budget whatever happens.
- Number two: Your current financial situation is so great that even a medium-sized payment can wait.
But remember, meaning you can afford to wait 30 days doesn’t mean you should.
2. When you trust your clients a lot
As we discussed, waiting 30 days is a huge no-go when dealing with new clients. You don’t know how they operate and whether or not they will uphold their end of the deal – in short, you probably can’t trust them. But you probably can trust clients who you’ve been working with for a long time, who you like working with and have developed a healthy business relationship over the years.
They might be worth giving some extra leniency if they ask for it. Obviously, if step one isn’t fulfilled and you can’t afford to wait 30 days, you’ll have to prioritize your own financial survival. But if, and only if, both step one and two happen to align, you can consider Net 30.
If you are struggling with your finances, you might also want to check our 8 crucial tips for freelancers article!
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