Set up the payment term
Longer they are, more the need in working capital to finance the receivables gets heavier, and more the risk to be impacted by a customer default is high.
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.
- 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.).
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|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|
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.
|Check||Bank transfer||Bill of exchange||Promissory note||Electronic bill of exchange||Bill of exchange without acceptance||Irrevocable deferred electronic payment order|
|Mail dependence||High||No||Very high||High||No||Low||No|
|Risk of delays||High||Medium||Low||Low||No||No||No|
|Suitable for bad payers||No||Yes||Yes||Yes||Yes||Yes||No|
The checkthis 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 check is a payment method to avoid especially with bad payers!
The bank transferFast, 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 exchangeThe 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 noteIt 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 exchangeThis 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 deferred electronic payment orderThe irrevocable deferred electronic payment order is an automated bank transfer to a future date. It is issued by the debtor (buyer). Unlike traditional bank transfer which is a cash transaction, the irrevocable deferred electronic payment order 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 deferred electronic payment order in order to get cash immediately .
Fill the invoice date and the tool provides the due dates for each payment term present in the tool.
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