From The Virtual Credit Manager
Payment Terms define when a customer is supposed to pay your invoice for the products and/or services you provided, at your expense, using your cash. The “norm” is 30 days from invoice date, but there are many exceptions. Many customers will try to extend your terms to 45 or 60 days or more. Outside the USA, and in the export business, payment terms are often 90 days or longer.
Extended payment terms delay your incoming cash flow. If more than a few customers have been granted extended terms, your cash flow can suffer substantial strain. The more extended terms you grant, the worse it will get.
To compensate, you may have to borrow funds, pay interest and submit to the lender’s conditions and covenants. In addition, it raises the risk of loss from customer bankruptcy and resulting non-payment. If a customer has 60 day payment terms, and pays 30 days late, you will have three months worth of sales at risk, versus two for the customer the pays a month slow on 30 day payment terms. Click here for full article