Net Terms (Net 30, Net 60, Net 90)
The number of days a customer has to pay after receiving an invoice. The standard mechanism that retailers use to float brands at the brand's expense.
Net terms set the number of days a customer has to pay an invoice after receiving the goods. Net 30 means payment is due 30 days after the invoice date, Net 60 means 60 days, and Net 90 means 90 days. The longer the term, the longer the brand is floating the retailer at its own expense. For a CPG brand selling into specialty or mass retail, net terms are the single biggest driver of working capital requirements.
How It Works
What each term means
Net terms are calculated from the invoice date, not the order date or the ship date. A Net 30 invoice issued on June 1 is due on July 1. A Net 60 invoice issued the same day is due August 1. Some retailers include early-payment discounts (often written as “2/10 Net 30,” meaning 2% off if paid within 10 days, full amount due within 30), but most beauty and mass retailers ignore the discount and pay at the end of the term.
Who pays at which term
DTC customers pay immediately (credit card settled within 2-4 days). Small specialty boutiques typically pay Net 30. Sephora, Ulta, and most beauty specialty retailers pay Net 60. Whole Foods, Target, Walmart, Costco, and Kroger pay Net 60 to Net 90 depending on category and contract. Amazon Vendor Central is typically Net 60 to Net 90. Major distributors can stretch to Net 90 or longer.
Why retailers stretch terms
The retailer is using the brand’s cash to fund its own operations. A retailer holding 90 days of payables across thousands of suppliers is effectively borrowing billions in interest-free working capital. The brand has no leverage to push back because shorter terms aren’t on the menu for most retailers, and walking away from a major retailer’s distribution is rarely worth the cash flow improvement.
Real Example
A brand ships $200,000 of product to Sephora on Net 60 terms. The manufacturer was paid $80,000 (40% COGS) 30 days earlier when production completed. From the day the manufacturer was paid to the day Sephora pays, 90 days have elapsed. During those 90 days the brand is funding $80,000 in production cost plus inventory in 3PL, co-op marketing commitments, and any retail chargebacks that get deducted. A growing brand running this cycle across 600 doors hits the working capital wall quickly, which is why brands like Ami Colé collapse despite strong sell-through.
Go Deeper
- Working Capital: How net terms compound into a brand’s total cash needs.
- Retail Distribution: The full retail mechanics, of which net terms are one component.
- Retail Chargebacks: How retailers deduct from the final payment before sending it.
- Getting Into Sephora: Why Sephora is a working capital problem, not a marketing one.
Frequently Asked Questions
What does Net 30 mean?
Net 30 means the invoice is due 30 days after it’s issued. The brand sells product, sends an invoice, and gets paid 30 days later. Most small specialty retailers and boutiques operate on Net 30. Larger retailers stretch the terms further.
Can I negotiate shorter net terms?
Rarely with major retailers. Sephora, Ulta, Target, and Walmart publish their payment terms and small brands have no leverage to change them. Smaller specialty retailers (independent boutiques, regional chains) sometimes negotiate Net 15 or Net 30, especially for emerging brands they want to support. The fastest way to shorten effective payment time is to factor invoices, which converts Net 60 into immediate cash for a fee.
What happens if a retailer pays late?
Most contracts have late payment language but enforcement is rare. Brands that push back on late-paying retailers risk losing the distribution. The realistic options are absorbing the delay, factoring the invoice through a financing partner, or refusing to ship future orders until the past invoice clears.
How do net terms affect working capital?
Directly. Every additional 30 days of net terms means another month of inventory and production cost the brand is funding out of pocket. A brand shifting from Net 30 to Net 60 on the same order volume needs roughly twice the working capital to maintain growth.
Sources
- Business of Fashion, “The Wholesale Cash Trap,” 2024. Payment terms across beauty wholesale and the working capital impact on indie brands.
- Beauty Independent, “Why Indie Beauty Brands Run Out of Cash,” 2024. Net terms and the Sephora payment cycle.
- Retail Dive, “How Retailers Use Supplier Payment Terms,” 2023. The economics of extended payment terms from the retailer’s perspective.