Net 120 payment terms: meaning, due date

Net 120 at a glance

Type

Net terms

Full amount due

120 days after the invoice date

Also written

N120, n/120

Example dates

Average amount owed to the supplier

Paying on the due date, about 120 days after the invoice date on average.

Setting up Net 120 in your ERP

Business Central

Due Date Calculation 120D

Xero

Bills due 120 day(s) after the invoice date

NetSuite

Term with Days Till Net Due 120

QuickBooks Online and Sage Intacct also store payment terms with a due rule. Whether an early-payment discount is applied to the bill automatically differs by product (Sage Intacct AP terms can carry one; Xero terms set due dates only), so check the bill's due date and amount after setting up a new term.

What it means

Net 120 is a net term: the full invoice amount is due 120 days after the invoice date, with no discount for paying early. It is also written N120 and n/120. The term gives the buyer 120 days of credit from the invoice date, not from the date the invoice is received or entered.

The AP control point is simple but easy to miss. Put Net 120 on the vendor record and on each invoice that carries it, and make the due date the invoice date plus 120 calendar days. Do not reduce the payment for an early-payment discount because there is no discount under this term.

Because the credit period is long, the invoice can sit in the queue for months. That makes it more likely that a clerk will rekey the term later, merge it with another supplier record, or pay from a statement without checking the original invoice. Treat the vendor record and the invoice as the source for the term, and keep the invoice date visible on the payment record.

Working out the due date

Start with the invoice date and add 120 calendar days. An invoice dated Thursday, Jan 15, 2026 is due Friday, May 15, 2026, which is 120 calendar days later and not a weekend. An invoice dated Friday, Feb 27, 2026 is due Saturday, Jun 27, 2026, also 120 calendar days later, and the due date falls on a weekend. An invoice dated Friday, Dec 18, 2026 is due Saturday, Apr 17, 2027, again 120 calendar days later, with a weekend due date.

Count from the invoice date, not the received date. If an invoice is dated Jan 15, 2026 but reaches AP on Jan 22, 2026, the due date stays May 15, 2026. Counting from the received date instead of the invoice date pushes the payment out by the delivery lag and can break the supplier's expected terms. The same error appears when a clerk counts from the date the invoice was entered into your ERP rather than the date printed on the invoice.

Net 120 does not count from month end. Do not use the last day of the invoice month as the starting point. When the due date lands on a Saturday or Sunday, the date is still the date calculated from the invoice date; agree with the supplier and your payment calendar on how weekend due dates are handled, and record that handling before the payment run.

Cash-flow effect

Net 120 ties up more cash than a short term. With $250,000 a year of spend with one supplier, about $82,192 is owed on average, $61,644 more than on Net 30. With $1,000,000 a year of spend with one supplier, about $328,767 is owed on average, $246,575 more than on Net 30. With $5,000,000 a year of spend with one supplier, about $1,643,836 is owed on average, $1,232,877 more than on Net 30.

The average days to pay is 120. That long balance can be useful if the supplier is effectively financing inventory or work in progress, but it also hides problems: a missed duplicate, an unapplied credit, or a wrong term sits longer before anyone notices. Controllers should review the aged AP report for Net 120 suppliers and compare the open balance with the invoices actually outstanding.

Net 120 has no early-payment discount, so there is no discount rate to compare with your own cost of funds. If cash is tight before the due date, compare any financing cost with your own cost of funds rather than paying early by habit. Do not treat the 120-day term as costless without checking the supplier's pricing and your working capital needs.

Where these invoices go wrong

Keying the wrong term is the first failure. A clerk sees N120 or n/120 and keys Net 30, Net 60, or a discount term, and the due date moves. Catch it by matching the term on the invoice to the term on the vendor record before the invoice is released, and by reviewing any invoice whose due date is not 120 days after the invoice date.

Counting from the received date instead of the invoice date is the second. The invoice date is printed on the document; the received date is when AP opened the mail. Use the invoice date, and when the two differ, note the invoice date in the approval trail so a later review does not reset the clock.

Taking a discount after the window is a separate control break. Net 120 has no discount for paying early, so a discount taken on a Net 120 invoice is wrong. If a discount term was keyed by mistake, the payment can be short or late; check the term and the discount date before releasing payment, and compare any discount rate with your own cost of funds only when the term actually offers one.

Paying a statement as well as the invoice, or paying a re-sent invoice twice, is common on long terms. The statement balance includes invoices already paid, and a re-sent invoice can look new when it arrives months later. Match by invoice number, invoice date and amount, mark the original as paid, and check the vendor statement against open invoices before you pay. Keep the remittance advice with the payment record so the next clerk can see what the payment covered.

Questions