Net-60 and Net-90 Terms With Large Customers

What do net-60 and net-90 terms mean under Minnesota law?

Net-60 and net-90 mean the full invoice amount is due 60 or 90 days after a starting event the contract names. Minnesota’s UCC sets its own timing only when the contract is silent, so the starting event matters as much as the number of days.

The default comes from Minn. Stat. § 336.2-310. “Unless otherwise agreed,” payment “is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery.” Where the seller is required or authorized to ship the goods on credit, “the credit period runs from the time of shipment but postdating the invoice or delaying its dispatch will correspondingly delay the starting of the credit period.” In plain terms, when a contract gives you a credit period but does not say when it starts, the clock starts at shipment, and a late invoice pushes it back.

Large customers usually write their own starting event. In my practice, one large customer’s master supply agreement I reviewed started a 90-day clock on the customer’s receipt of the supplier’s invoice and required the supplier to invoice upon shipment. Under that wording, any delay in the customer’s receipt or logging of the invoice lengthened the term. If you accept a receipt-based clock, define receipt, for example as the date the invoice is uploaded to the customer’s portal or emailed to a named address.

What can a supplier ask for in return for longer payment terms?

Ask for terms that offset the cost of carrying the customer’s debt: a price that reflects the longer wait, a defined start date for the clock, an early-pay discount option, a credit limit, a right to hold shipments when invoices are past due, and rules for deductions. Each is an ordinary contract term.

The cost is easy to see. Moving a customer from net-30 to net-90 triples the time each invoice stays unpaid, so at the same sales volume your receivable from that customer grows to about three times its former size. That money has to come from your cash, your credit line, or a funder. The terms worth negotiating in exchange:

1. Price. Build the financing cost into the unit price, or into a price step that applies only to the longer term.
2. Start date. Tie the clock to shipment or invoice date, and define how an invoice is delivered.
3. Early-pay option. Offer a discount for paying sooner so the customer, not you, chooses whether to pay for the longer term.
4. Credit limit. Cap the open balance and give yourself the right to require payment before shipping once the cap is reached, and the right to request financial information when the customer’s condition changes.
5. Past-due shipments. State that you may hold or require prepayment on new orders while any invoice is past due.
6. Late charges. Set interest or a late fee in the signed agreement (the limits are covered in the interest section).
7. Deductions. Require documentation and a set dispute process before the customer can short-pay an invoice.
8. Security. For a customer whose finances are weaker than its size suggests, ask for a parent-company guaranty or a standby letter of credit.

Once the terms are signed, the work shifts to enforcing the payment terms you negotiate and avoiding payment terms that can create UCC problems.

How do early-pay discounts and supply-chain finance programs work?

An early-pay discount lets the customer take a stated percentage off the invoice for paying within a shorter period. A supply-chain finance program works differently: the customer approves your invoice, a bank or finance platform pays you early at a discount, and the funder collects the full amount from the customer when the term ends.

Both tools cost you money, and the cost depends on how early the payment arrives. Common shorthand such as “2/10 net 30” means 2 percent off if the customer pays by day 10, otherwise the full amount in 30. Giving up 2 percent to be paid 20 days early is an annualized cost of about 37 percent. Giving up the same 2 percent to be paid 80 days early on a net-90 invoice is about 9 percent a year. Compare either figure with what your own line of credit costs before you offer or accept the discount.

A supply-chain finance program puts a third party between you and your customer. Your payment term with the customer may stay the same while the funder offers you early payment at a discount rate set under the funder’s agreement, not your supply agreement. Read that agreement for the rate and how it is set, fees, whether the funder can come back to you if the customer disputes or short-pays an invoice, and whether you can leave the program. Treat a customer’s request to lengthen terms and its offer of a finance program as one negotiation, since the program’s discount is part of the price of the longer term.

When do portal terms and purchase-order terms change your payment deal?

Terms in a customer’s supplier portal or on its purchase orders change your payment deal only if the agreement incorporates them or you agree to them. Minnesota’s UCC lets parties change a sale-of-goods contract without new consideration, but a signed clause requiring signed modifications blocks informal changes.

Under Minn. Stat. § 336.2-209, “An agreement modifying a contract within this article needs no consideration to be binding.” A no-oral-modification clause cuts the other way: “A signed agreement which excludes modification or rescission except by a signed writing or other signed record cannot be otherwise modified or rescinded.” Even a change that fails that test “can operate as a waiver,” and a party that waived a term affecting future performance “may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver.” If you have tolerated slow payment and want the contract term back, give that notice in writing.

Portal terms deserve the closest read. One large customer’s draft supply agreement I reviewed required the supplier to register in the customer’s online purchase-order and payment system and follow its guidelines as amended from time to time. My redline limited that duty to guidelines provided to the supplier in writing, so a change posted in the portal would not quietly change the deal. Printed purchase-order terms raise the related question of whose terms govern when purchase orders and quotes conflict.

Read the remedy section beside the payment section. Under Minn. Stat. § 336.2-719, a sale-of-goods agreement “may limit or alter the measure of damages recoverable under this article.” Where a limited remedy fails “of its essential purpose,” the UCC’s remedies return, and “Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable.” A supplier should confirm that a cap written to limit its own liability does not also limit what the customer owes for goods it received.

How does Minnesota limit interest and late fees in a supply contract?

Apart from the prejudgment interest a court can award, interest on a late invoice is generally a matter of contract, and Minnesota’s interest statute limits it. Minn. Stat. § 334.01 sets 6 percent a year when no other rate is contracted for in writing, caps what may be taken for a loan or forbearance, and limits compounding, with an exemption for large written credit contracts.

The Minnesota Court of Appeals put the starting rule plainly: “The general rule is that liability for interest is purely a matter of contract, requiring a promise to pay it” (American Druggists Insurance v. Thompson Lumber Co., 349 N.W.2d 569, 573 (Minn. Ct. App. 1984)). Section 334.01, subd. 1 then sets the rate “at the rate of $6 upon $100 for a year, unless a different rate is contracted for in writing,” and provides that no one may take more “for the loan or forbearance of money, goods, or things in action, than $8 on $100 for one year.” It adds that “interest shall not be compounded, but any contract to pay interest, not usurious, upon interest overdue, shall not be construed to be usury.” Applying section 334.01 to a supplier’s invoices, the court held that “interest cannot be compounded. The monthly invoices did not indicate interest was to be compounded; the compound amount thus cannot be allowed.”

Two provisions change the ceiling for business credit. Subdivision 2 provides that “no limitation on the rate or amount of interest, points, finance charges, fees, or other charges applies to a loan, mortgage, credit sale, or advance made under a written contract, signed by the debtor, for the extension of credit to the debtor in the amount of $100,000 or more.” For a business contract for the loan or forbearance of money or goods in an amount of less than $100,000, Minn. Stat. § 334.011, subd. 1 permits a rate “of not more than 4-1/2 percent in excess of the discount rate on 90-day commercial paper” at the Federal Reserve Bank serving Minnesota. Which of these fits your agreement turns on how it is written and signed, so set the rate in the signed agreement and check it against these sections. The details are covered in adding interest to invoices in Minnesota and the limits on interest charged to commercial customers.

A flat late fee is judged differently. Under Minn. Stat. § 336.2-718, damages “may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach,” and “A term fixing unreasonably large liquidated damages is void as a penalty.” Tie any fee to the real cost of carrying and chasing a late invoice.

How does a supplier collect invoices a large customer has not paid?

Collect in the order the contract and Minnesota’s UCC support: a written past-due notice under the contract, a written demand for adequate assurance when the payment record gives reasonable grounds for insecurity, and then suit for the unpaid balance. Invoices the customer kept without objection can also support an account stated.

The assurance demand comes from Minn. Stat. § 336.2-609. “When reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until such assurance is received may if commercially reasonable suspend any performance for which the person making the demand has not already received the agreed return.” Between businesses, reasonableness and adequacy “shall be determined according to commercial standards.” The statute sets the consequence: “After receipt of a justified demand failure to provide within a reasonable time not exceeding 30 days such assurance of due performance as is adequate under the circumstances of the particular case is a repudiation of the contract.” Check the current text before you rely on that period.

Your invoices are evidence too. In American Druggists, the court explained that “A party’s retention without objection for an unreasonably long time of a statement of account rendered by the other party is a manifestation of assent,” the basis of an account stated claim. In one matter, a supplier kept filling a national retailer’s orders while a growing share of its invoices went well past due, and the demand I sent sought the unpaid invoices plus prejudgment interest. Keep deductions a large customer takes from your invoices on a separate track, since each one is its own dispute.

How do stoppage in transit and reclamation protect a supplier when the customer is insolvent?

Minnesota’s UCC lets a seller that discovers its buyer is insolvent refuse further delivery except for cash, stop goods still in a carrier’s hands, and reclaim goods the buyer received on credit while insolvent if the seller demands them within the statute’s short window.

“Insolvent” has a defined meaning under Minn. Stat. § 336.1-201, subsection (b)(23): “having generally ceased to pay debts in the ordinary course of business other than as a result of bona fide dispute;” “being unable to pay debts as they become due; or” “being insolvent within the meaning of federal bankruptcy law.” Under Minn. Stat. § 336.2-702(1), a seller that discovers insolvency “may refuse delivery except for cash including payment for all goods theretofore delivered under the contract, and stop delivery.” Under Minn. Stat. § 336.2-705, the seller can stop goods in a carrier’s or other bailee’s possession until “receipt of the goods by the buyer” or one of the section’s other cutoff events, such as a bailee other than a carrier acknowledging to the buyer that it holds the goods for the buyer, and must notify the carrier early enough “to enable the bailee by reasonable diligence to prevent delivery of the goods,” and “the seller is liable to the bailee for any ensuing charges or damages.”

Reclamation is narrower. Section 336.2-702(2) provides: “Where the seller discovers that the buyer has received goods on credit while insolvent the seller may reclaim the goods upon demand made within ten days after the receipt, but if misrepresentation of solvency has been made to the particular seller in writing within three months before delivery the ten-day limitation does not apply.” Check the current text before relying on that window. The right “is subject to the rights of a buyer in ordinary course or other good faith purchaser,” so goods a retailer has already sold are usually beyond reach, and “Successful reclamation of goods excludes all other remedies with respect to them.”

What happens to unpaid invoices if a large customer files bankruptcy?

When a customer files bankruptcy, most unpaid invoices become general unsecured claims. The federal Bankruptcy Code gives priority to the value of goods the customer received shortly before filing, preserves a written-demand reclamation right, and lets the trustee recover some payments you received before the filing. Under 11 U.S.C. § 362(a), “Except as provided in subsection (b),” the filing “operates as a stay, applicable to all entities,” of “a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title” and of “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title.”

Three provisions matter most to a supplier. First, 11 U.S.C. § 503(b)(9) allows as an administrative expense “the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.” Second, 11 U.S.C. § 546(c) preserves reclamation of goods the debtor received while insolvent “within 45 days before the date of the commencement of a case,” but only if the seller “demands in writing reclamation of such goods,” “subject to the prior rights of a holder of a security interest in such goods or the proceeds thereof.” The seller may not reclaim unless it makes that demand “not later than 45 days after the date of receipt of such goods by the debtor; or” “not later than 20 days after the date of commencement of the case, if the 45-day period expires after the commencement of the case.” A seller that misses that demand “still may assert the rights contained in section 503(b)(9).” Third, under 11 U.S.C. § 547(b), the trustee may recover certain payments made “for or on account of an antecedent debt,” including payments made “on or within 90 days before the date of the filing of the petition,” when the statute’s other conditions are met. Each of these periods is set by the statute’s text, which you should check before relying on it.

The preference rule has defenses. Section 547(c)(2) protects a payment of a debt incurred in the ordinary course of business of the debtor and the supplier, to the extent the payment was made in the ordinary course of business or “made according to ordinary business terms.” That is one more reason to keep your collection practices consistent. The mechanics are covered in how the preference period is calculated.

Net-60 and net-90 terms are a financing decision dressed as a payment term. Price the longer wait, define when the clock starts, put any interest or late fee in the signed agreement within Minnesota’s limits, and keep the right to hold shipments when the customer falls behind. If the customer’s finances turn, Minnesota’s UCC and the Bankruptcy Code reward the supplier that acts early and in writing. For related issues, see my contracts practice. If you would like a second set of eyes on a large customer’s proposed payment terms or supply agreement, email [email protected] with a brief description. Contact the firm to start an intake and conflict check before sending confidential documents.