Wholesale Club 101: Net Terms
Net terms are a very common feature of the wholesale landscape, and many wholesale customers will expect to have them as a payment option. In this post, we’ll go over what net terms are, how they function in wholesale selling, and how they work in Wholesale Club so that you can offer net terms in your Shopify store.
What are net terms?
Net terms are a type of payment terms. Rather than having a customer pay at the time of purchase, net terms provide a delay in payment. The purpose of net terms is to give your customer the time to sell some of the products they’ve purchased from you before they have to pay you for those products.
How do net terms work?
As an example, this is how Net30 terms would work:
July 1: Customer buys products from your wholesale business.
July 2: Customer starts selling products at retail prices to B2C customers.
July 31: Payment is due, and the customer uses the income from selling the products to pay your invoice.
In this case, you’re giving your customer 30 days to start making money from the products before they have to pay you for them. Common terms are Net15, Net30, Net45, and Net60, and each of these refers to the number of days the customer has to pay. The longer the payment window, the more time they have to sell products and bring in revenue that they’ll use to pay your invoice.
Who should receive net terms?
Offering net terms comes with a risk – what if you send out your wholesale goods and the customer never pays? However, there are ways to mitigate this risk, and offer net terms with confidence.
A common approach is to require that new wholesale customers complete an application form. This helps you confirm that they are an actual business (to do so you can ask for tax ID numbers, such as a GST number for Canadian companies) and gives you the opportunity to ask for trade references. These references can be other wholesalers who can vouch for the customer’s ability to pay on time.
Once you’re satisfied with a customer’s references – or, if you want to bypass references entirely – you can have them place their first few orders with immediate payment. After that, you can extend net terms to them with more confidence. If you’d rather not offer net terms to certain customers, you don’t have to – Wholesale Club gives you total flexibility in this area (more on that below).
Why would a wholesale business offer net terms?
Net terms are common in the wholesale industry because they’re very helpful to B2C retailers (wholesale customers). This is because they assist with a smooth cash flow. And anything that’s good for B2C retailers is good for wholesalers, because it makes them more likely to shop with you! Of course, a delay in payment may impact your business, so carefully consider whether offering net terms makes sense for you.
How do net terms work in Wholesale Club?
First, we have to mention that net terms are a feature available on the Professional Plan. So if you’re on the Basic Plan and you want to offer net terms, you’ll need to upgrade. It’s worth it, though, because upgrading also gets you the Custom Prices and Volume Discounts features.
With that out of the way, let’s talk about how Wholesale Club allows you to set up net terms! In a nutshell, you use tags to allow certain wholesale customers to buy on net terms. When they make a purchase, they bypass Shopify’s checkout and opt to pay for their order at a later date. You then manually collect payment using either Shopify invoices or external payment methods.
When a customer has a net terms tag applied to their account, they will see a net terms checkout button and shipping address selector in addition to the regular checkout option. When they place an order, it will come into your admin either as a draft order or a final order – it’s up to you to decide which you prefer in the app settings, and we have a Help Center article that goes through the differences.
A great aspect of Wholesale Club is that net terms tags are separate from discount tags. This means you can maintain your discount groups while being particular about who gets net terms and who doesn’t.
It’s all very seamless from the customer perspective! It also simplifies what can otherwise be a complex process for you, the wholesaler.
Let’s keep in touch!