A large customer wants to work with you. Great news. Then they send the contract: net-60 payment terms.
Do you take it? Can you afford to wait 60-90 days to get paid?
For many B2B businesses, offering payment terms isn’t optional. Large buyers expect it. Government contracts require it. Competitors offer it. But saying yes means you’re funding your customer’s cash flow with your own working capital.
This article breaks down when offering payment terms makes sense and how to do it without limiting your growth.
Why customers want payment terms
Large companies manage cash flow by paying vendors on extended terms. It’s standard practice in B2B commerce – unlike B2C where payment happens at the point of sale.
Government and enterprise procurement processes often require net-30, 60 or 90 terms. Their accounts payable systems run on cycles, approvals take time, and payment processes are rigid. If you want to work with larger customers or government contracts, you’ll probably need to offer terms.
Your competitors likely offer terms too. When a buyer is choosing between vendors and one offers immediate payment requirements while another provides net-60 terms, the buying decision often favors flexibility.
The reality: if you want to work with larger customers or government contracts, offering payment terms is often the cost of competing.
The cost of offering payment terms
Direct cost: cash tied up
If you offer net-60 terms on a $100,000 project with 15% profit margin, you have $15,000 in profit you can’t deploy for 60-80+ days. And that assumes your customer pays on time – the average B2B invoice is paid 20 days past stated terms.
Here’s the math on a typical business: $2 million annual revenue, $300,000 profit, $500,000 average accounts receivable balance at any given time. That means roughly $75,000 in earned profit sitting in receivables instead of funding growth.
Indirect costs
Opportunity cost: What could you do with immediate access to your earned revenue? Hire key employees sooner. Take on larger projects. Negotiate better vendor terms.
Growth cost: How many opportunities have you turned down because you didn’t have cash on hand? Every contract you decline because you can’t fund 60-90 days of payroll and materials is revenue left on the table.
Stress cost: Managing cash flow timing creates constant pressure. You’re juggling receivables dates against payroll, vendor payments and operating expenses. That mental overhead has a cost.
Competitive cost: When you turn down contracts because cash flow is tight, competitors who can manage the terms win the business. Over time, this becomes market share loss.
The data shows the problem is getting worse:
- 81% of businesses report an increase in delayed payments
- 82% report cash flow disruption from late payments
- Average payment arrives 20 days past stated terms
If you offer net-30 terms, you’re typically getting paid 50+ days after you sent the invoice.
See the full breakdown: Our free guide compares bank loans, lines of credit, factoring and Revenue On Demand side by side – including hidden costs most businesses miss.
Download “The Hidden Cost of Late Payments” guide
When offering payment terms makes sense
You should offer terms when:
Your target customers expect them. Enterprise buyers and government contracts typically require net-30 to net-90 terms. If this is your market, terms are table stakes.
The contract value and profit justify the cash flow wait. A $500,000 contract with 20% margins ($100,000 profit) can justify waiting 60 days. A $25,000 contract with 10% margins ($2,500 profit) probably can’t.
You have a way to manage the cash flow gap. Whether through savings, a credit facility or Revenue On Demand, you need working capital to bridge the payment timing.
The customer has good payment history and credit. Working with established B2B customers who pay reliably reduces risk. First-time customers or those with poor payment records increase your exposure.
You should reconsider when:
You’re already cash-constrained. If you’re struggling to make payroll or pay vendors on time, taking on extended payment terms adds pressure you can’t absorb.
The customer has poor payment history. Research their payment practices. If they consistently pay 30-60 days late on stated terms, consider that when deciding.
Your margins are too thin to absorb the delay. Low-margin businesses have less buffer. If you’re operating at 5-8% margins, waiting 60-90 days for payment can break your cash flow.
You have no way to bridge the gap. Without access to working capital – either savings, credit or Revenue On Demand – you’ll be constantly stressed managing timing.
Red flags to watch for:
- Customer wants 90+ day terms on the first project together
- No payment history or credit information available
- Industry known for payment issues
- Your gut says something’s off
Trust your instincts. If a deal feels risky, it probably is. Strong accounts receivable collection practices help you identify and manage payment risk before it becomes a problem.
How to offer terms without limiting growth
Strategy 1: Tiered terms based on customer relationship
Structure terms based on trust and history:
- New customers: Net-15 or 30
- Established customers with good payment history: Net-45 or 60
- Enterprise and government: Net-60 or 90 (but use Revenue On Demand to get paid right away yourself)
This approach balances relationship building with cash flow management.
Strategy 2: Deposit plus terms
For larger projects, require 25-50% deposit upfront with the remainder on terms. This reduces your cash exposure while still offering flexibility to the customer.
A $400,000 project with 30% deposit means you receive $120,000 upfront and $280,000 on net-60 terms. You’ve cut your receivables exposure by nearly a third.
When deposits alone aren’t enough, there are several ways to get paid right away on invoices without taking on debt or giving up control.
Strategy 3: Use Revenue On Demand for larger contracts
Offer the terms your customer wants while getting paid right away yourself.
How this works:
- Customer gets net-60 terms (happy customer, you win the deal)
- You choose to use Revenue On Demand on this invoice
- You get paid within 24 hours of invoice approval (minus a flat fee)
- Customer pays on original terms
- You keep the relationship and get the cash
Example scenario: A manufacturing company competed for a $400,000 government contract requiring net-60 terms. Without Revenue On Demand, they’d need to front 60+ days of material and labor costs – cash they didn’t have.
With Revenue On Demand, they won the contract, accelerated invoice payment for a flat fee of 5.25%, and got paid within 24 hours of invoice approval. The $60,000 profit (15% margin) became available right away instead of 60+ days later. They used that cash to take on two additional contracts the same quarter.
Unlike invoice factoring, which holds back 15-20% in reserves and charges late fees, Revenue On Demand provides 100% of your invoice value (minus the flat fee) with no surprises.
Strategy 4: Negotiate terms
Don’t accept terms blindly. Terms are often negotiable, especially with smaller buyers.
Questions to ask:
- “What’s your standard payment process timeline?” (They may say net-45 but actually pay in 60-70 days)
- “Can we start with net-30 and adjust after we establish a relationship?”
- “Would a small discount for early payment work?” (2% discount for payment within 10 days can be worth it)
Many buyers will negotiate if you ask. The worst they can say is no.
Making your decision
Offering payment terms is often necessary to compete for larger contracts. The real question is how to offer them without letting cash flow limit your growth.
The old way: either turn down contracts you can’t fund, or take on debt to bridge the gap.
The new way: offer competitive terms, win the business, and use Revenue On Demand to get paid on your timeline.
Ready to offer terms without the cash flow pressure?
Download “The Hidden Cost of Late Payments” to see how payment delays impact B2B businesses and compare all your cash flow options. The guide includes real scenarios, cost comparisons and strategies for managing growth without cash flow limitations.