Payment terms define when a buyer must pay a supplier after receiving goods — and they are often a low-cost form of working-capital financing for a team with recurring supplier purchases.
A supplier offering Net 30 is extending a zero-interest, 30-day loan on every invoice. That free float directly reduces your cash conversion cycle by increasing DPO. Yet many small operators pay invoices the day they arrive, voluntarily surrendering weeks of free credit because nobody tracks when payment is actually due.
Quick answers
What are the most common payment terms? COD (Cash on Delivery), Net 15, Net 30, Net 60, 2/10 Net 30 (2% discount if paid within 10 days, full amount due in 30), EOM (End of Month), and CIA (Cash in Advance). Net 30 is the most common default for established supplier relationships.
What does 2/10 Net 30 mean? The supplier offers a 2% discount if you pay within 10 days of the invoice date. If you do not take the discount, the full amount is due in 30 days. The implicit cost of skipping the discount is 37.2% annualized — often worth taking if you have the cash or a credit line below that rate.
How do payment terms affect cash flow? Longer terms give you more time to sell inventory and collect revenue before the supplier invoice is due. Net 60 instead of Net 30 means 30 extra days of float on every order — effectively a free, revolving credit facility sized to your purchasing volume.
Can I negotiate better payment terms? Yes. Suppliers extend better terms to buyers with reliable payment history, consistent volume, and low credit risk. Start by paying on time for 3-6 months, then ask. Offer volume commitments or longer contracts in exchange for extended terms.
What does CIA mean in payment terms? CIA means cash in advance: the buyer pays before the supplier ships. CIA is common for new buyers, custom goods, international orders, or higher-risk accounts. It protects the supplier but is expensive for the buyer because cash leaves before inventory can be sold. Moving from CIA to COD, Net 15, or Net 30 is a meaningful working-capital win.