Faire's NET 60 payment terms represent one of the most significant differences between wholesale and retail accounting. While these extended payment terms can help retailers manage their cash flow and inventory investments, they create complex accounting challenges for wholesale sellers that require careful planning and systematic management.

This comprehensive guide will help you understand how to properly account for NET 60 transactions while maintaining healthy cash flow and accurate financial records.

What Are NET 60 Payment Terms?

NET 60 payment terms mean that retailers have 60 days from the invoice date (or delivery date, depending on terms) to pay for their wholesale orders. This extended payment period is common in B2B transactions but creates unique accounting and cash flow challenges.

How NET 60 Terms Work on Faire

Faire's payment structure combines marketplace convenience with traditional wholesale payment terms:

Order Processing: Retailers place orders and provide payment information, but charges are not processed immediately.

Fulfillment Period: Sellers ship products and provide tracking information through Faire's platform.

Payment Timing: Faire processes payment from retailers 60 days after delivery confirmation.

Seller Payment: Faire pays sellers after collecting from retailers, minus commission and processing fees.

Comparison with Other Payment Terms

NET 60 terms are more generous than many other payment structures:

Retail/Ecommerce: Immediate payment at time of purchase
NET 30: Payment due within 30 days (more common for smaller orders)
NET 60: Payment due within 60 days (standard for larger wholesale orders)
NET 90: Payment due within 90 days (rare, typically for very large customers)

Accounting for NET 60 Transactions

Proper accounting for NET 60 terms requires understanding the difference between revenue recognition and cash receipt timing.

Revenue Recognition Principles

Revenue should be recognized when earned, not when cash is received. For wholesale transactions, this typically means:

Accrual Basis Accounting: Record revenue when products are shipped and delivered, regardless of payment timing.

Matching Principle: Match the costs associated with sales (COGS, shipping, commissions) to the same period as revenue recognition.

Consistency: Apply the same revenue recognition principles consistently across all transactions and time periods.

Recording NET 60 Sales

When recording NET 60 sales, the timing of different accounting entries is crucial:

At Time of Shipment:

  • Record gross sales revenue
  • Record cost of goods sold
  • Record estimated commission expenses

At Time of Payment (60+ days later):

  • Record cash receipt
  • Record actual commission and processing fees
  • Adjust any estimation differences

Cash vs Accrual Accounting Impact

The choice between cash and accrual accounting significantly affects how NET 60 terms impact your financial statements:

Accrual Accounting Benefits:

  • More accurate representation of business performance
  • Better matching of revenues and expenses
  • Easier to analyze profitability and trends
  • Required for most businesses with significant revenue

Cash Accounting Limitations:

  • Revenue recognition delayed until payment received
  • Difficult to analyze business performance with 60-day delays
  • May not qualify for business loans or investment
  • Creates artificial peaks and valleys in financial reports

Cash Flow Management with NET 60 Terms

Managing cash flow with 60-day payment delays requires careful planning and adequate working capital.

Working Capital Requirements

NET 60 terms significantly increase working capital needs:

Inventory Investment: You must purchase or produce inventory before receiving payment.

Operating Expenses: Cover 2-3 months of operating expenses while waiting for payment.

Growth Capital: Additional working capital needed as sales volume increases.

Seasonal Considerations: Peak seasons may require 4-6 months of working capital due to concentrated ordering.

Cash Flow Forecasting

Accurate cash flow forecasting becomes critical with extended payment terms:

Sales Pipeline Tracking: Monitor orders in various stages from placement to payment.

Payment Timing Analysis: Track actual payment timing to improve forecasting accuracy.

Seasonal Patterns: Account for seasonal variations in ordering and payment timing.

Customer Payment Behavior: Monitor individual customer payment patterns and reliability.

Financing Strategies

Various financing options can help manage NET 60 cash flow gaps:

Traditional Bank Lines of Credit: Revolving credit facilities secured by accounts receivable or inventory.

Invoice Factoring: Sell outstanding invoices to factoring companies for immediate cash.

Asset-Based Lending: Borrow against inventory and receivables values.

Alternative Financing: Online lenders and fintech solutions designed for ecommerce and wholesale businesses.

Managing Payment Risk

Extended payment terms increase credit risk that must be actively managed to protect your business.

Customer Credit Evaluation

Evaluating retailer creditworthiness helps minimize payment risk:

Credit Applications: Require formal credit applications for new customers requesting NET terms.

Credit References: Check references from other suppliers and vendors.

Financial Statements: Review customer financial statements when available.

Payment History: Monitor payment patterns and adjust credit limits accordingly.

Credit Limits and Monitoring

Establishing appropriate credit limits protects against excessive exposure:

Initial Limits: Set conservative credit limits for new customers.

Limit Increases: Gradually increase limits based on payment performance.

Ongoing Monitoring: Regularly review customer payment behavior and adjust limits.

Early Warning Systems: Identify payment delays or other warning signs quickly.

Collection Procedures

Systematic collection procedures help ensure timely payment:

Payment Reminders: Send friendly reminders before payment due dates.

Follow-up Schedule: Establish escalating follow-up procedures for overdue accounts.

Documentation: Maintain detailed records of all collection activities.

Professional Collections: Consider professional collection services for seriously delinquent accounts.

Accounting System Considerations

Your accounting system setup significantly affects how well you can manage NET 60 transactions.

Chart of Accounts Setup

Proper account structure helps track NET 60 transactions effectively:

Revenue Accounts:

  • Wholesale Sales - Faire
  • Sales Returns and Allowances
  • Early Payment Discounts (if offered)

Expense Accounts:

  • Faire Commission Fees
  • Payment Processing Fees
  • Bad Debt Expense
  • Collection Costs

Balance Sheet Accounts:

  • Accounts Receivable - Faire
  • Allowance for Doubtful Accounts
  • Deferred Revenue (if applicable)

Transaction Recording Methods

Different methods for recording NET 60 transactions have various advantages:

Method 1: Record Full Transaction at Shipment

  • Record full revenue and estimated expenses when shipped
  • Adjust for actual fees when payment is received
  • Provides immediate visibility into sales performance

Method 2: Record Revenue with Payment Tracking

  • Record revenue at shipment with detailed payment tracking
  • Use accounting system features to monitor payment timing
  • Provides better cash flow visibility

Klavena's Approach to NET 60 Transactions

Klavena handles NET 60 transactions by focusing on actual cash movements rather than traditional accounts receivable tracking:

Cash-Based Recording: Klavena records sales receipts when cash actually changes hands rather than maintaining detailed accounts receivable records.

Simplified Approach: This approach reduces complexity while ensuring accurate cash flow tracking.

Integration Benefits: Automatic categorization of Faire payments when they are received, including proper allocation of commission fees.

Reporting Clarity: Clear visibility into actual cash received and timing without the complexity of traditional AR management.

Seasonal Considerations for NET 60 Terms

Seasonal wholesale businesses face additional challenges with NET 60 payment terms due to concentrated ordering patterns.

Peak Season Cash Flow

Peak seasons create extreme cash flow challenges:

Pre-Season Investment: Significant inventory investment 3-4 months before receiving any payments.

Extended Collection Periods: Peak season orders may not be paid until 4-5 months after initial investment.

Working Capital Strain: Maximum working capital requirements during peak season preparation.

Recovery Timing: Cash flow recovery doesn't begin until well after peak season ends.

Off-Season Management

Managing operations during off-seasons requires careful planning:

Cash Preservation: Minimize expenses during low-revenue periods.

Inventory Planning: Balance inventory levels for next season while managing current cash flow.

Relationship Maintenance: Continue customer relationship activities despite low current revenue.

Financial Planning: Use off-season periods for financial analysis and planning.

Multi-Season Planning

Successful seasonal businesses plan across multiple seasons:

Annual Cash Flow Modeling: Model cash flows across entire annual cycles.

Growth Planning: Plan growth rates that don't exceed cash flow capabilities.

Financing Timing: Arrange financing before peak season working capital needs.

Risk Management: Maintain reserves for unexpected seasonal variations.

Technology and Automation

Automated systems become essential for managing the complexity of NET 60 transactions at scale.

Manual Process Limitations

Manual management of NET 60 terms creates significant challenges:

Tracking Complexity: Manually tracking dozens or hundreds of outstanding payments is overwhelming.

Timing Errors: Easy to lose track of payment due dates and collection timing.

Cash Flow Blindness: Difficult to maintain accurate cash flow projections manually.

Customer Management: Hard to monitor customer payment patterns and creditworthiness manually.

Automation Benefits

Automated NET 60 management provides crucial advantages:

Payment Tracking: Automatic tracking of payment due dates and collection timing.

Cash Flow Forecasting: Real-time cash flow projections based on outstanding payments.

Customer Analytics: Automated analysis of customer payment patterns and reliability.

Exception Management: Automatic alerts for overdue payments and collection needs.

Integration Considerations

Effective NET 60 management requires integration across multiple systems:

Accounting System Integration: Seamless flow of transaction data between systems.

CRM Integration: Customer payment history and credit information available to sales teams.

Inventory Management: Coordinate inventory planning with payment timing and cash flow.

Banking Integration: Automatic reconciliation of payments received with outstanding invoices.

Best Practices for NET 60 Success

Implementing these best practices helps maximize the benefits of NET 60 terms while minimizing risks.

Customer Relationship Management

Strong customer relationships are crucial for NET 60 success:

Clear Communication: Establish clear payment terms and expectations upfront.

Regular Contact: Maintain regular communication beyond just collection activities.

Value Delivery: Ensure customers receive exceptional value to encourage timely payment.

Problem Resolution: Address customer issues quickly to maintain positive relationships.

Financial Management

Disciplined financial management protects your business:

Conservative Planning: Plan cash flow conservatively and maintain adequate reserves.

Regular Monitoring: Monitor cash flow and payment patterns closely.

Early Warning Systems: Identify potential problems before they become critical.

Professional Advice: Work with accountants and financial advisors experienced with wholesale businesses.

Operational Excellence

Excellent operations support successful NET 60 relationships:

Quality Control: Maintain high product quality to minimize returns and disputes.

Accurate Documentation: Provide clear, accurate invoices and shipping documentation.

Responsive Service: Respond quickly to customer questions and concerns.

Process Consistency: Maintain consistent processes for order fulfillment and customer service.

Conclusion

NET 60 payment terms can be a powerful tool for building strong wholesale relationships and growing your business, but they require careful accounting and cash flow management to implement successfully.

Success with NET 60 terms depends on understanding the accounting implications, planning for extended cash flow cycles, and implementing systems that can handle the complexity of wholesale relationships. While the challenges are significant, businesses that master NET 60 accounting often enjoy higher customer loyalty, larger order sizes, and more predictable seasonal patterns.

Klavena's approach to recording transactions when cash changes hands simplifies NET 60 accounting while maintaining accuracy and providing clear visibility into actual cash flow. This approach reduces the complexity of traditional accounts receivable management while ensuring you have the information needed to make informed business decisions.

Whether you're new to wholesale or looking to optimize existing NET 60 processes, investing in proper systems and planning will provide the foundation for sustainable wholesale success.