Net Terms and Getting Paid: How to Handle Wholesale Payment Risk

Net 30, net 60, net 90. Wholesale buyers expect these payment terms, but when you ship $3,000 of product and wait three months to get paid, you are the bank. If the retailer closes or disputes the invoice, you are also the collection agency.

Small brands without a credit team face real payment risk. This post gives you the working methods to decide which accounts get terms, what structures reduce your exposure, and when to require cash upfront.

What net terms actually cost you

Net 30 means the retailer pays 30 days after the invoice date (sometimes 30 days after delivery, read the purchase order). Net 60 is 60 days. Net 90 is 90 days.

Your costs during that period:

• You paid for ingredients, packaging and manufacturing upfront
• That cash could have bought more inventory or funded another production run
• If the payment is late, you spend hours on follow-up emails and calls
• If the retailer goes out of business or refuses to pay, you lose the full invoice amount

Illustrative example: you ship a $2,000 order (wholesale) on net 60. Your COGS is 40%, so you spent $800. For 60 days, that $800 is tied up. If your next production run needs $10,000 and you have five similar orders outstanding, you have $4,000 locked in receivables. You either delay production or borrow.

If the retailer pays 30 days late (common), you are out 90 days. If they never pay, you lose $800 in hard costs plus the margin you expected.

Run a basic credit check before you ship

Do this for any account asking for terms on an order over $500:

1. Search the business name and owner name in your state's Secretary of State business registry. Confirm the entity is active and matches the name on the purchase order.
2. Google the business name plus "reviews" or "closed". Look for complaints about non-payment to other vendors or signs the store is struggling.
3. Check their social media and website. Active posts in the last 30 days and a functioning online presence suggest ongoing operation. No posts in six months is a warning sign.
4. Call the store. If no one answers or the voicemail is full, do not ship on terms.
5. Ask for trade references. Request contact information for two other suppliers. Call them and ask if the retailer pays on time. Most suppliers will tell you.

For orders over $2,000, consider a paid credit report from Dun & Bradstreet, Experian Business or Creditsafe (costs around $50 to $200 depending on detail). The report shows payment history with other vendors, outstanding liens, and a credit score. A Paydex score below 60 (Dun & Bradstreet scale) means the account often pays late.

If you cannot verify the business is stable and paying other vendors, require prepayment or cash on delivery.

Payment structures that reduce your risk

You do not have to choose between full terms and no sale. These structures let you say yes to the account while protecting cash flow.

50% deposit, 50% on net 30

The retailer pays half when they place the order, half 30 days after delivery. You recover your COGS upfront and extend terms only on your margin. This works well for first orders with new accounts.

Credit limit

Approve the account for terms up to a specific dollar amount (for example, $1,000). Once they pay the first invoice on time, increase the limit. If they are late, freeze new orders until they pay.

Shorter terms

Offer net 15 or net 20 instead of net 30. Cuts your exposure window in half compared to net 60. Some buyers will accept it, especially if your product moves quickly.

2/10 net 30

The retailer gets a 2% discount if they pay within 10 days, otherwise full amount due in 30 days. This incentivizes faster payment. A 2% discount costs you less than the carrying cost and risk of waiting 60 or 90 days.

Cash on delivery

The retailer pays when the shipment arrives, usually via check or card on file. Eliminates all payment risk but requires the retailer to have cash ready. Works best for reorders under $1,000.

Credit card or ACH on file

The retailer authorizes you to charge their card or bank account on the due date. You control the timing and avoid waiting for them to send payment. Build this into your terms agreement.

When to say no to terms

Say no and require prepayment if:

• The business has been open less than one year and you cannot verify financial stability
• Your credit check turns up late payment history, liens, or judgments
• The business is not responsive (does not answer calls or emails within two business days)
• The order is over 25% of your monthly revenue (concentrates too much risk in one account)
• You have heard from other suppliers that the account does not pay
• The retailer is evasive when you ask for trade references or credit information

You will lose some sales. That is acceptable. One bad debt of $3,000 erases the profit from $15,000 in sales if you run a 20% net margin.

Saying no: "We are happy to work with you. Our standard terms for new accounts are 50% deposit and 50% net 30, or prepayment with a 2% discount. Once we have a payment history, we can discuss extended terms."

Most professional buyers understand. If they push back hard or refuse any deposit, that is additional evidence of payment risk.

Track receivables every week

Set up a simple spreadsheet with these columns: Customer name, Invoice number, Invoice date, Amount, Due date, Days outstanding, Status (current, 1 to 30 days late, 30+ days late).

Update it every Monday. Any invoice more than 7 days past due gets a follow-up email the same day. Template: "Hi [name], checking in on invoice [number] for $[amount], which was due on [date]. Can you confirm payment status and expected payment date? Let me know if you need a copy of the invoice."

If the invoice is 15 days late, call. If 30 days late, stop shipping new orders and send a formal demand letter (search "demand letter for payment template" for free examples). State the amount owed, due date, and that you will pursue collection if not paid within 10 days.

If 60 days late and the retailer is not responding, decide whether to send the account to collections (costs 25% to 50% of the amount collected) or write it off. For amounts under $1,000, collections often costs more than it recovers.

Put terms in writing before you ship

Do not rely on a verbal agreement. Send a terms agreement or include terms on your invoice and get written confirmation (email is fine) before you ship.

Your terms document should state:

• Payment due date (net 30 from invoice date, or specify delivery date)
• Late fee (for example, 1.5% per month on overdue balances, check your state law for maximum allowed)
• Your right to stop shipping if payment is late
• Who pays for returns or damaged goods
• Jurisdiction for disputes (your state, so you do not have to travel to sue)

Keep a signed or email-confirmed copy. If you have to pursue collection, you need proof the retailer agreed to the terms.

Consider invoice factoring or financing for growth

If you have consistent wholesale orders and need to free up cash before terms expire, two options:

Invoice factoring: you sell your invoices to a factoring company at a discount (typically 2% to 5% of invoice value). They pay you immediately and collect from the retailer. You lose some margin but get cash today. Works best if you have multiple strong accounts with good credit.

Invoice financing: you borrow against your receivables. The lender advances 80% to 90% of the invoice value, you pay interest (often 1% to 3% per month), and you repay when the retailer pays. You keep the customer relationship and collection responsibility.

Both options cost money, but they can be cheaper than the opportunity cost of waiting 90 days or the risk of bad debt. Compare the cost to your gross margin and growth rate. If you make 50% gross margin and factoring costs 3%, you still net 47% and can reinvest immediately.

Factoring companies that work with small brands include BlueVine, Fundbox, and TCI Business Capital. Expect to provide financial statements and a list of receivables.

What to do this week

• Build a receivables tracking spreadsheet and enter every outstanding invoice with due dates and days outstanding.
• Draft a standard terms agreement that states your payment terms, late fees, and conditions, and send it to any new wholesale account before you ship.
• For any invoice currently more than 7 days past due, send a follow-up email today asking for payment status and expected payment date.
• Decide your credit policy: write down the maximum order size you will ship on terms to a new account without a credit check, and the minimum checks you will run before approving terms (for example, trade references and a Google search for orders over $500).