How did we get to 60 day credit terms?

28 Feb

We recently wrote an article about experimenting with shortening your credit cycle to 20 or 25 days but at the same time there are some customers pushing for 60 or 90 day terms. Larger customers are increasingly paying on these lengthy credit cycles whether you agree to them or not. Here are some things to consider if you run into this problem.

Why are they asking or taking extended terms?

Some companies may ask for extended terms in order to have more available cash for growth. In these cases, the company has the money to pay, but are seeking extra time in order to help grow their business. This can be a good reason for extended terms. Their growth could mean an expanded relationship for you. Some companies might have a longer cycle to to turn your product into cash. Understanding their business and working with them with extended terms might give you an advantage over your competition.  On the other hand, some companies may seek extended terms in order to delay payment because they have taken on too much debt and/or experiencing problems in their business.  In these cases, you should tread with caution and perhaps even reduce their credit.

Now Later sign, Payment Terms, C2CResources.comDo you need the payment sooner?

Though it is always nice to receive a payment sooner rather than later, do you really need that cash? If your business is living payment to payment, then extending longer credit terms could kill your business but if you have a nice cushion of working capital to cover cost in the meantime you will have more flexibility.

How important are they to your bottom line?

Lastly, it is important to consider that most of these big customers are very important to your businesses bottom line.  If a customer represents a large portion of your sales, they have the power to dictate the terms of their payment cycle. It can be frustrating, but more often than not you will be better off accepting this and keeping them as a customer. In this case you may need to seek a line of credit if the immediate cash is important to your business but for relationship and competitive reasons you have to accept the extended terms.

Credit terms can be a complicated topic and there are many options that we did not discuss here. If you are interested in learning more, please check out our free ebook (link)

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