Credit Terms in India: Decoding Net 30, Net 60, and More

One thing about company is certain: your ability to manage money can make or ruin you. Credit conditions come into play here. In business-to-business (B2B) negotiations, you’ve undoubtedly heard phrases like “Net 30” and “Net 60” bandied about. However, what do they really mean? What’s more, how do they affect Indian businesses?

What Exactly Are Credit Terms?

Credit terms are basically the amount of time a buyer has to pay up after receiving goods or services. Instead of demanding payment right away, businesses give customers some leeway—30 days, 60 days, 90 days—depending on what’s agreed. These terms smooth out the whole transaction process, giving buyers time to organize their cash flow while still keeping things running. The key terms to know are:

Net 30: Pay the full amount within 30 days.

Net 60: Pay the full amount within 60 days.

Net 90: You get 90 days to settle the payment.

The word “Net” here just means the total due, and the number is the deadline to cough up the cash. Simple enough, but the impact on businesses is huge.

How Do Credit Terms Play Out?

Now let’s use an actual example. On October 1st, a printing shop orders 1,000 brochures and sends an invoice for ₹30,000 to a client. In case they have decided on “Net 30,” the client must pay the entire amount of ₹30,000 before October 31st. If the terms were “Net 60,” then November 30th would be the extension of that date.

What’s the point? Time is everything. The vendor must wait for payment while the customer is given an extension to make their payment. This waiting game has the power to create or break cash flow for small enterprises.

Credit Terms in the Indian Market

In India, credit terms are everywhere—especially in sectors like manufacturing, wholesale, and even retail. But they’re not all created equal. In industries like real estate or construction, you might see longer credit terms, like Net 60 or even Net 90. Meanwhile, sectors like retail stick to shorter terms, like Net 15 or Net 30, to keep things moving. It’s all about managing risk and cash flow.

That said, India has its own challenges when it comes to credit. Delayed payments are a real problem. Sometimes businesses end up waiting far beyond the agreed credit term, stretching their working capital thin. Sure, offering credit terms builds trust with clients, but it can also turn into a waiting game where businesses have to chase payments.

The Legal Side: Why Credit Terms Matter

India isn’t playing around when it comes to protecting small businesses. Enter the MSMED Act (Micro, Small, and Medium Enterprises Development Act) of 2006. According to this law, if you’re dealing with an MSME (Micro, Small, and Medium Enterprises), you’ve got a strict timeline to follow: 45 days. That’s the maximum time you have to pay them after receiving their goods or services. If you don’t? Brace yourself for penalties. The law mandates that late payments come with interest at three times the bank rate notified by the RBI.

For bigger corporations, this is a wake-up call: You can’t just delay payments forever and push smaller suppliers to the edge. The law exists to keep things fair, but it only works if businesses know their rights and enforce them.

Why Should You Care About Credit Terms?

Credit terms aren’t just some technical jargon—they’re the backbone of how businesses manage cash. For sellers, offering credit terms like Net 30 or Net 60 shows flexibility and helps build trust. It’s a way to keep clients happy without demanding cash on the spot. But here’s the flip side: offering long credit terms can also mess with your cash flow. If clients don’t pay on time, you’re stuck with unpaid invoices and a bunch of bills to cover.

For buyers, longer credit terms give you breathing room. You can manage your working capital better, invest funds elsewhere for the time being, and plan your payments. But make no mistake—miss the deadline, and you’re not only burning bridges but also inviting penalties and late fees.

Managing Credit Terms, the Smart Way

So, how do you deal with credit terms without letting them wreck your cash flow? Here are some tips:

Be Clear and Direct: Make sure your invoices clearly state the credit terms. If it’s Net 30, make it obvious. And don’t be shy about mentioning late fees if they apply.

Invoice Fast: Don’t wait around to send invoices. Get them out the moment you deliver the goods or finish the service. The earlier you send, the faster you get paid (hopefully).

Stay on Top of Payments: Don’t just send the invoice and hope for the best. Follow up with clients as the due date approaches, especially with longer terms like Net 60 or Net 90.

Use Early Payment Discounts: If you want to speed things up, consider offering a small discount for early payment. For example, “2% off if paid within 10 days” can be a nice motivator.

Questions to Understand your ability

Que.1 What does “Net 30” actually mean?

a) You’ve got 30 hours to pay up

b) Payment is due on delivery

c) You’ve got 30 days to settle the bill

d) Pay 30 days late, but with interest

Que.2 Which industry in India tends to use longer credit terms like Net 60 or Net 90?

a) Your local grocery store

b) Real estate and construction

c) Cafes and restaurants

d) Movie theaters

Que.3 Under the MSMED Act, how long do you have to pay MSMEs before you’re in trouble?

a) 30 days, max

b) 60 days, easy

c) 45 days, no more

d) 90 days, no rush

Que.4 What happens if you delay payment to MSMEs beyond 45 days under the MSMED Act?

a) Nothing really

b) You owe interest—3 times the RBI bank rate

c) You can negotiate for more time

d) The invoice expires

Que.5 What’s a smart trick to get clients to pay faster?

a) Give them more time to pay

b) Offer a discount for quick payment

c) Charge a fee for early payments

d) Automatically extend the deadline

Conclusion

Credit terms like Net 30, Net 60, and even Net 90 are the unsung heroes of the business world. They let businesses keep things running without demanding immediate payment and help clients juggle their finances. But here’s the catch: it’s a balancing act. You’ve got to find the sweet spot between giving your clients breathing room and making sure your cash flow doesn’t tank.

In India, where payment delays can be a real headache, managing credit terms properly isn’t just smart—it’s essential. So, whether you’re a student just learning the ropes or a Chartered Accountant dealing with this day-to-day, keep your eye on the calendar. Those due dates can make all the difference between smooth sailing and a cash flow crisis.