Extended payment terms: A win-win for businesses and their customers

Late payments continue to impact businesses of all sizes, disrupting cash flow, straining relationships, and impeding growth. The problem is exacerbated by the fact that many companies now employ trade credit as a standard practice, a trend that initially aimed to foster better collaboration and competitiveness but has, in some cases, evolved into a double-edged sword. But by using tech-driven funding to facilitate extension of payment terms, both customer and supplier can boost their cash flow without causing disruptions to each others business.

Offering extended payment terms in B2B trade is driving a shift from the traditional trade credit model, where the financial risk rests with the supplier until full payment is received. With almost half of B2B sales credit remaining unpaid by the due date, offering extended payment terms allows companies to easily implement payment methods that bring mutual benefits to every B2B transaction. This article outlines how this can be done and why businesses could benefit from leverage extended payment terms.

What are extended payment terms, and what are the benefits?

Extended payment terms allow business customers to pay their invoices at a later date without sacrificing their supplier’s cash flow. This is typically done through a third-party finance facility where the supplier receives payment in full, and the customer can pay the invoice at later date, or via instalments. It’s a win-win situation for both parties: the customer gets more time to pay, and the trade credit risks are mitigated.

Supplier Benefits

• Improved cash flow: When your business gets paid on time, you can better manage your cash flow and facilitate strategic growth plans.
• Stronger sales growth: Appearing more affordable to customers can lead to increased sales, especially for large or expensive purchases.
• Better customer relationships: Show your customers that you are committed to building a long-term relationship. This can also help reduce the number of bad debts you experience.
• Competitive advantage: Become a more attractive supplier to purchase from, which is especially powerful if your competitors don’t offer extended payment terms.

Buyer Benefits

• Smarter cash flow management: Better align your cash inflows and outflows by delaying payment or spreading it out over instalments.
• Better value: Your business can place larger orders and, where applicable, take advantage of volume discounts or early settlement discounts.
• Stronger supplier relationships: There’s no guessing game over how and when payment will be made, leading to stronger relationships with your suppliers.
• Gain more control over growth: By delaying or spreading payments over time, you can strategically plan investments in growth initiatives.

How to safely offer your customers extended payment terms

With the right finance facility in place, you can extend your customer’s invoice payment terms without sacrificing your cash flow. You will, however, need robust systems and processes in place to assess a customer’s creditworthiness and carefully ensure they can pay and meet the terms and conditions of your finance facility. Similarly, these terms and conditions need to be clear and understood by all parties to eliminate any known problems with making or taking payments. By working with a reputable third-party finance provider, such as Spenda, you can remove internal resource pressures and reduce your risk as the provider will conduct all the relevant credit checks and manage compliance and risk on your behalf.

Offer your customers extended payment terms with Spenda

Extended payment terms transform B2B transactions, benefiting all parties across the supply chain. Spenda’s solution helps suppliers boost their cash flow while customers stabilise theirs by having more time to pay their invoices – which can be further extended if the customer is able to make payment via credit card (and takes advantage of any interest-free periods offered by their card provider). This means your business can spend less time chasing late payments, better optimise working capital, and reduce their credit exposure.

Spenda is is an integrated business platform that enables businesses across the supply chain to sell better and get paid faster. We serve as both a software solutions provider and a payment processor and deliver the essential infrastructure to streamline business processes before, during and after the payment event. Our software enables the smooth flow of funds throughout a supply chain or network of buyers and sellers, from producer to end-consumer.

This article is for general information purposes only. Consult a qualified financial advisor regarding any changes to or decisions about your business’s finances.