Implications of Net 30 Payment Terms

When you're a W2 employee, you probably get paid twice a month or every two weeks.

When you go 1099, you will probably agree to Net-30 payment terms.

What this means is that you will get paid 30 days after you invoice.

For example, you will work January 1-31st. You then invoice all your hours for January on February 1st. Net 30 means the payment is due 30 days after that date, which in this case means March 3rd or so.

You have worked January AND February without getting paid.

After that, you will be paid every month if you're working consistently, you invoice on time, and the prime pays on time.

Let's say you leave on April 30th. You will get a check for your March work around May 1st.

Then, even if you don't work at all in May, you will get a check for your April work around June 1st.

To sum it up:

  • When you get your first gig, you need to make sure you can pay your bills for two months and
  • When you leave your 1099 gig, you should have two more checks heading your way

Basically, you will always have some "working capital" tied up in your 1099 business. At any given point in time on a 1099 contract, the prime will owe you money. When you first start, this means you need to fund yourself. When you leave, the prime pays off his "debt" to you and then you get that money back.

It's just something to get used to. As a 1099 you may also have to do things like figure out why the payment amount is incorrect or why the deposit hasn't hit your account. No big deal, it just takes slightly more management then getting a W2 paycheck.

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