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Payment terms have a direct effect on your business cash flow and on the risk to get unpaid invoices and bad debts.

The longer the payment term, the greater the working capital requirement and the higher the risk of non-payment, whether due to insolvency or administrative problems.

It is often much more profitable to negotiate shorter payment terms and to offer a discount to your customer in order to compensate the earlier payment request.

This negotiation should be integrated into the global trade negotiation. Inter-company credit induced by the payment term granted by a seller to a buyer represents in France more than 800 billion euros, or three times the state budget! It is the primary source of funding for companies and represents on average 25% of their balance sheet assets.

This ratio is considerable enough to be managed with the greatest attention, especially since a company attentive to the payment deadlines granted to its customers will manage to reduce them considerably and thus improve its cash flow and its Working Capital Requirement.
 Keep in mind that the credit given to your client is not compensated by an interest rate. As long as they are not paid, your bills' value goes down because of inflation. The credit given to customers is therefore:
  • A risk. You are not sure to be paid,
  • A cost due to inflation and capital employed,
  • A consumption of your company's financial resources that would be probably better used elsewhere (investment, business development ... etc.).
The payment terms include the payment delay and the payment method negotiated with your customer. The payment method also has a strong impact on the risk of late payments.
Associate with the negotiated condition of payment the adapted payment method to reduce the risk of late payment.

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What are the main payment terms between businesses?

There are a multitude of payment terms but we can divide them into two categories:

  • Those based on a number of days to add to; the invoice date such as "60 days invoice date". The payment delay granted is therefore always strictly equal to the number of days indicated, i.e. 60 in our example.

    In the case of daily invoicing, there will be as many due dates as there are invoice dates, which increases the risk of late payments. Few companies make payments to their suppliers every day.

  • Those who consolidate the due dates on a date in the month, such as 30 days end of month on the 10th. The advantage lies in the fact that all invoices issued over a month "M" ; are due on the 10th of the month "M+2". This facilitates collection for the seller and management for the buyer.
Please note that payment terms between professionals are limited in France to 60 days from invoice date or 45 days end of month. Find out more.

Certain sectors are subject to shorter terms:

Transport sector limited; à 30 days net (Law of 2006 and 2008 transposed in the article L441-11 of the commercial code).
Public establishments have deadlines imposed by the decree n° 2013-269 of March 29, 2013 from:
  • 30 days from invoice date for the State and public establishments other than those of an industrial and commercial nature, as well as for local authorities.
  • 50 days invoice date for public health establishments (all public and military hospitals).
  • 60 days invoice date for other audiences.
Payment term Average length of credit in days
10 days net 10
End of month the 10th 25
30 days net 30
End of month the 25th 40
30 days end of month 45
30 days end of month the 10th 55
30 days end of month the 15th 60
45 days end of month 60
60 days net 60
30 days end of month the 25th 70
60days end of month 75
60 days end of month the 10th 85
90 days net 90
60 days end of month the 25th 100
90 days end of month 105
90 days end of month the 10th 115
120 days net 120
 Be sure to correctly understand the terms of payment: 30 days end of month 25 is a longer period than 60 days net.
 Use the shorter payment term but also the best suited to the orders timing:
For example, if your customer orders are frequent (several times in a month), you should preferably use 30 days end of month the 15th rather than 60 days net. Both payment terms grant the same credit days in average. In the first case, your client will have a single payment to do each month (the 15th of each month) while in the second case, there will be as many due dates as dates of invoices. The consequence will be systematically to have late invoices.

Payment means

Like the payment delay applied to invoices, the payment method must be clarified beforehand, during commercial negotiation. This subject is important because several risks and opportunities depend on the means of payment:
  • Risk of late payments,
  • Risk of non-payment,
  • Possibility to discount the means of payment.

Instant payment

Instant payment is a means of payment available 24 hours a day, 7 days a week. It allows you to make a fund transfer in a few seconds. It is therefore particularly interesting in all cases where proof of transfer triggers an immediate consideration, for example the delivery of goods or a service. This method of payment therefore has many advantages for managing customer risk in certain cases. The transfer is non-cancellable but is capped. à an amount of 15,000 euros in Europe.

The SEPA request to pay

Request to Pay (RTP) is a pan-European standard for initiating payment via messaging to streamline and secure transactions between two economic players (professionals and individuals). He is initiated by the seller who sends via this messaging scheme a link including all the information necessary for the purchase. the buyer to initiate a transfer. Once validated, the seller receives a payment confirmation. The entire process is digitalized, so that the Request to Pay and instant transfer pairing is seamless. works at high speed wonder for immediate payments and on demand. This approach is particularly relevant for direct payments. the order, whereù which must perfectly coincide with the delivery.

The check

this payment method has many disadvantages for small advantages. It depends on the postal delay, it is worded and signed by hand. A customer wishing to gain a few weeks of cash will abuse you with wrong reasons to justify delays of payment:
  • the check was supposedly sent but has not arrived. Your client asks you a letter of withdrawal before he issues a new check,
  • the check was sent to a wrong address,
  • the check is received unsigned. You must send it back to your customer for signature and then he will send it back to you again ... etc.
The only advantage of the check is to provide a recourse through a bailiff if it is returned unpaid for lack of provisions (that depends on the country).

The check is a completely obsolete method of payment, laborious to process, and to be avoided in a period of digitalization of customer relations, including payment methods.

The bank transfer

Fast, reliable, efficient, bank transfer is a safe payment method. In addition, it cannot be returned once it is on your bank account (no return unpaid possible). Its only disadvantage is that it cannot be anticipated with a payment done a later due date.

The bill of exchange

The bill of exchange is issued by the supplier and has the advantage to be an unconditional order in writing to pay at fixed date a certain amount of money. You can receive the bill before the due date (eg 30 days), you cash it in your bank account and your client will be automatically debited to date.

This possibility limits the disadvantages of paper and the dependence of mail. Such as the check a bill of exchange may come back unpaid several weeks after the due date unless it is endorsed by the bank of your client.
Variant of the bill of exchange, bills of exchange without acceptance consists for the suppliers to deliver directly to the bank (without signature of the buyer) the bill of exchange. The buyer can then accept or refuse collection.

The promissory note

It has the same features as the bill of exchange except that it is issued by the buyer and not by the supplier.

The electronic bill of exchange

This payment mean is a way to computerize the bills of exchange. The supplier (the drawer) sends an electronic file to the bank. Then there is an exchange between the supplier’s and the buyer’s (drawee) banks and the buyer accept or reject the bill of exchange.

This payment method has the advantages of the bill of exchange without the disadvantages. It requires to be implemented a strong partnership between supplier and buyer as the buyer is losing its autonomy in the management of its payments to his supplier.

The irrevocable bank transfer

The irrevocable bank transfer is an automated bank transfer set for a future date. It is issued by the debtor (buyer). Unlike traditional bank transfer which is a cash transaction, the irrevocable bank transfer provides a settlement at a future date which has several advantages:
  • you are informed in advance of the payment of your bills,
  • you are guaranteed to be paid. No unpaid possible,
  • you can discount the irrevocable bank transfer in order to get cash immediately .

Credit card

This payment method rarely used by professionals is gradually becoming more democratic, but rather for small structures. In some countries such as the United States, its use is much wider so it is possible that this trend will strengthen in Europe and other regions in the future, especially as online payment solutions are integrated into software such as My DSO Manager which greatly facilitate their usage.
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Last comments
Very interesting indeed but one thing is not precised. It refers to 45 days eom. I hear about 2 interpretations: one says 45 days then end of month; the other says 45 days from the end of the month. For an invoice dated jan 20, in first case payment shall take place latest end march; the 2nd interpretation says payment on the 15th of march. What is your opinion? Any official rule to refer to? Depending on specific country? Best regards

You are right, both calculations are good. In France, the law says that both are usable. Seller and buyer ahve to agree on the prefered method.
Best Regards, Bertrand

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