Net 90 vendors are suppliers or vendors that offer payment terms of 90 days or longer for their goods or services. In other words, businesses that work with net 90 vendors have up to 90 days to pay their invoices, which can be particularly attractive for companies that need more time to manage their cash flow.
Net 90 vendors can be particularly beneficial for businesses that have seasonal or irregular cash flow, as it can provide them with more flexibility to manage their expenses. Additionally, net 90 payment terms can help businesses to better manage their working capital and invest in growth opportunities, without having to worry about immediate payment.
However, while there are certainly benefits to working with net 90 vendors, there are also some potential drawbacks and risks that businesses should consider. In the following sections, we’ll explore the pros and cons of working with net 90 vendors in more detail, and offer some guidance on how to decide whether they are the right fit for your business.
The Pros of Working with Net 90 Vendors
There are several benefits to working with net 90 vendors, including:
- Improved Cash Flow: One of the primary benefits of working with net 90 vendors is that it can help improve a business’s cash flow. By extending the payment term to 90 days or longer, businesses have more time to pay their invoices, which can help free up cash for other expenses or investments. This can be particularly beneficial for small businesses that may not have as much working capital as larger companies.
- Greater Flexibility: Net 90 payment terms can also provide businesses with greater flexibility when it comes to managing their expenses. By having more time to pay their invoices, businesses can better match their cash inflows and outflows, which can help them avoid cash crunches and financial stress.
- Seasonal or Irregular Cash Flow: Net 90 vendors can be especially beneficial for businesses with seasonal or irregular cash flow. For example, a business that experiences a surge in sales during the holiday season may need more time to pay its invoices in order to manage its expenses during slower periods.
- Investment in Growth Opportunities: Finally, working with net of 90 vendors can also provide businesses with the ability to invest in growth opportunities, such as new products or marketing campaigns. By having more time to pay their invoices, businesses can free up cash to invest in these opportunities without having to worry about immediate payment.
The Cons of Working with Net 90 Vendors
While there are some benefits to working with Net 90 vendors, there are also several disadvantages that businesses need to consider before entering into such arrangements.
Higher costs
One of the main disadvantages of working with Net 90 vendors is that businesses may end up paying higher costs. This is because vendors may charge higher prices to compensate for the delayed payment. For example, if a vendor normally charges $100 for a product, they may increase the price to $110 if the business wants to use Net 90 payment terms. This is because the vendor wants to ensure that they receive adequate compensation for the time value of money.
Cash flow challenges
Another major disadvantage of working with Net 90 vendors is that it can create cash flow challenges for businesses, especially those that are already struggling with cash flow. Net 90 payment terms mean that businesses will have to wait longer to pay their bills, which can lead to a shortage of funds in the short term. This can be especially challenging for small businesses that have limited cash reserves.
Risk of default
Finally, working with Net 90 vendors can increase the risk of vendor default. This is because the longer payment period gives vendors more time to experience financial difficulties, which may lead to them defaulting on their obligations. This can be especially problematic if the vendor is a key supplier or provides critical products or services. If the vendor defaults, the business may have to scramble to find a replacement supplier, which can be time-consuming and costly.