90-Day Payment Terms: When to Let a Customer Pay Later and When You Are Financing Them

Key questions

A customer says: “We will pay in 90 days.” The price is the same, the orders keep coming, so there seems to be no reason to refuse.

In this article: how much cash a longer payment term ties up in your firm, how to work out what it costs, and five questions to ask before you agree.

1. The payment term is a hidden discount

When a customer pays later, you are in effect lending them money with no interest. While you wait for the payment, you still pay your suppliers, salaries and bills.

So a longer payment term has a price, even though it does not appear on the invoice.

2. An illustrative example: how much cash gets tied up

Say you sell goods to a customer for 100,000 euros a month. With a 30-day term, about one month’s worth sits with the customer, that is, 100,000 euros. With a 90-day term, three months sit there, that is, 300,000 euros.

The difference is 200,000 euros that you must find elsewhere: from your own cash or from a loan.

If you borrow that money at 8% a year, it comes to about 16,000 euros a year. On sales of 1.2 million euros a year, that is about 1.3% of revenue, and many firms earn only a little more than that. The figures are made up, and the method works for any firm: replace them with your own.

3. What else can go wrong

The longer the term, the greater the chance that the customer pays late or does not pay. A 90-day term easily becomes 120 or 150.

If the customer is large, a late payment can freeze your money just when you need it most, and force you to take an expensive loan just to meet your own obligations.

Keep in mind that customers compare notes: if one gets 90 days, the others will ask for the same.

4. Five questions before you agree

First: how much cash does the longer term tie up, and do you have it? Work out the amount in euros, not in days.

Second: what do you owe your own suppliers, and when? If you pay in 30 days and collect in 90, you finance the gap yourself.

Third: how sure are you that the customer will pay on time? Check how they have paid so far.

Fourth: can you get something in return? A bigger quantity, a longer contract, an advance, a discount for paying early.

Fifth: what happens if the customer is late? Is there interest on late payment and a right to stop deliveries?

5. Alternatives to a long term

You can offer a short term with a small discount for early payment, a partial advance, payment by delivery stage, or credit insurance for the receivable.

If you must accept a long term anyway, at least build it into the price.

Related decision: Your Supplier Wants an Advance: How Much Money Are You Willing to Let Go.

6. How Expert Consilium can help

Expert Consilium gives the same question to several separate AI perspectives (4, 9 or 15, depending on the level). You describe the customer’s offer with your own figures, and you get one structured report: options, key figures, risks and the questions that remain open.

It is fully automated decision support. It does not replace your accountant or expert advice, but it gives you a list of aspects you could easily miss yourself.

Disclaimer

This text is a business analysis, not legal, tax or financial advice. The decision is always yours.

With us, the client receives a structured report.

The level we suggest: Consilium (9 AI perspectives, 19 EUR) or Grand Consilium (15 AI perspectives, 29 EUR).

Sample report: expertconsilium.com/en/sample-report