The benefits of accepting extended payment terms

Extended payment terms is a strategy that leverages paying back invoices over a longer period of time. Often these terms are 60+ days with some exceeding 120 days or more. For the buyer, extended payment terms are a big positive, this means that they develop a healthy cash-flow as their financial outgoings are delayed while their usual incomings remain the same.

But for their suppliers, this can cause a knock-on effect and stifle cash-flow. As Nigel Smith, Managing Director of Chef’s Patisserie, says “when you start dealing with some of the blue chip companies that we deal with, some of those payment terms can be 60 days, 70 days, some 90 and it’s very hard when you’re paying bills weekly.”

So why put your business in the position of accepting extended payment terms? The answer is simple – you, as an SME gets the chance to hold your own with the bigger players in your industry. The majority of larger brands and businesses require extended payment terms from their suppliers. It’s a case of accepting that you may have some delays with invoice payments as a price for working with big business.

But are big brands really worth the risk? While it may seem like accepting extended payment terms is a bit of an unbalanced deal – big brands build trust. Being able to attach household names to your business is a way of ensuring credibility to other potential customers. It’s proof that you’re not just saying you’re good at what you do but that big businesses believe it too.

Extended payment terms also mean that because your customers have a better cash-flow, they have more available cash to invest in growing their business. With a strong partnership in place, reaffirmed by your flexibility on payment terms, their success could easily become your success as a bigger business may need more of your services.

Impact to your cash-flow from long payment terms can be a concern but invoice finance can help. By setting up an invoice finance facility, you have the ability to offer extended payment terms – and work with those big name businesses – without putting a stop to your cash-flow.

We worked with Chef’s Patisserie to help them balance their desire to work with blue chip companies and also be able to pay the bills. Nigel went on to say “Our external accountants were saying, no you don’t need it it’s fine. You just pull your controls in tighter and make customers pay quicker. That’s all very well on paper but it doesn’t work. Listening to all the information, invoice finance was the right way”.

At Optimum Finance, we utilise innovative technology to offer a range of flexible funding solutions, which grow alongside your business. Get an instant estimate for the amount of funding you could access with our finance calculator. Products include invoice discounting and factoring that can boost your cashflow and give you access to a dedicated credit control team.

Email or call us to speak to our experienced team of experts and find out how invoice finance could help your business. We pride ourselves on getting things done quickly and providing access to cash within 24 hours of approval. We are passionate about finding solutions and delivering to clients’ needs.