QuotedPartAnswers · Updated 2026-10-30
Should a small machine shop accept net 60 or net 90 terms?
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Accept net 60 or net 90 only after you price the cash tied up and decide how much credit your shop can carry. The term is not free: you buy material, pay labor and ship before the invoice clears. Worked example: a $12,000 order with $7,500 cash cost and a 10% annual financing assumption ties up about $123 for 60 days ($7,500 × 10% × 60/365) or $185 for 90 days. That is a planning calculation, not a published borrowing rate; replace it with your actual cost of cash.
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Calculate the cash gap, not just the invoice
Map when money leaves and arrives. If material is paid at order, labor is paid weekly and the buyer pays 60 days after an accepted invoice, the shop finances the production and any delivery dispute. Include inspection holds, partial shipments, retainage and the time your accounting team spends collecting. Net 90 can be manageable for a repeat buyer with a clean record and damaging for a new buyer who changes scope.
In the example, $7,500 is the cash cost before the $12,000 invoice. At a stated 10% annual financing assumption, 60-day carrying cost is $7,500 × 0.10 × 60/365 = $123.29; 90 days is $184.93. Add a documented credit-risk allowance only if management approves it, and keep the assumption labeled.
| Term | Formula | Carrying cost |
|---|---|---|
| Net 30 | $7,500 × 10% × 30/365 | $61.64 |
| Net 60 | $7,500 × 10% × 60/365 | $123.29 |
| Net 90 | $7,500 × 10% × 90/365 | $184.93 |
Negotiate options before refusing the buyer
Offer a deposit for material and setup, progress billing at first article, or net 30 for the first order with a review after payment history. You can also quote two prices: one at your standard terms and one with the buyer’s requested term, showing the validity and scope. A small discount for payment on shipment may cost less than carrying the receivable, but calculate it against the days saved.
Set a credit limit and stop-work trigger. The salesperson should not promise net 90 if the owner has not approved the exposure. Put payment term, invoice trigger, freight, taxes, late fees where lawful and dispute contacts in the quote or order acknowledgment.
Check the customer and the invoice path
Ask who approves receipt, whether the PO requires portal submission, whether “net 60” starts at shipment or an accepted inspection, and whether the buyer can offset disputed amounts. A technically perfect job can become a cash problem when the invoice lacks a PO line or the receiving team cannot match the packing slip. Track promised and actual payment dates by customer.
If a buyer insists on net 90 and will not fund material, decide whether the order is worth the capacity and risk. A lower-margin job that pays on shipment may be more useful than a higher-price job that consumes a quarter’s working capital.
What to do next
Write a one-page credit policy: who can receive extended terms, what deposit or limit applies, how disputes are escalated and when production pauses. Put the chosen term on every quote and invoice, then review actual days-to-cash quarterly.
Illustrative payment-term assumptions
- • Order invoice $12,000; cash cost before collection $7,500.
- • Annual financing assumption 10%; simple day-count 365.
| Term | Carrying cost |
|---|---|
| Net 30 | $61.64 |
| Net 60 | $123.29 |
| Net 90 | $184.93 |
Price one of your own parts
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