Hiring guide
Wholesale credit terms: model a change before offering it
By CFO Index · Published
Offering a wholesale customer more time to pay changes when your business funds the sale. Before sales agrees new terms, ask finance to show the transition: which receipts move, which supplier payments stay fixed and how low cash could fall. This is a decision about a proposed offer, not a process for chasing overdue invoices.
Define exactly what is changing
Name the customers and invoices covered, the effective date and the event that starts the payment clock. Thirty days from invoice date differs from thirty days after month-end or delivery acceptance. Confirm whether the offer applies only to new orders, rather than shifting existing invoices without agreement. Record the price, order quantity, returns assumptions and any customer credit limit alongside the proposed terms. Keep unchanged items fixed for the first comparison.
Use a quick exposure estimate, then build the calendar
For stable eligible credit sales, a rough timing estimate is daily eligible sales multiplied by the additional collection days. Hypothetical example: €90,000 of sales in a simplified 30-day month is €3,000 a day. Adding thirty days suggests €90,000 more receivables once the changed cycle settles. This is a planning approximation, not a measure of the peak cash shortfall. It assumes even sales and payment on time, and excludes tax, returns, seasonality and growth. The dated forecast must test those separately.
Show the transition, not just the eventual receivables balance
Hypothetical single-invoice example: a €40,000 invoice dated 1 October is collected on 31 October under the current terms or 30 November under the proposed terms. A €25,000 supplier payment remains due on 20 October. From 31 October until collection on 30 November, the proposed case holds €40,000 less cash than the original case, assuming all other movements are identical. The €25,000 supplier payment is already in both cases; do not deduct it again as an extra cost of the extension. Layer in every affected invoice to find the company's actual lowest balance.
Separate extra sales from the cost of waiting
First compare the same sales under both terms. Then add a separate case for any extra orders the commercial team expects the offer to win. Show the evidence and the extra purchasing or delivery commitments those orders require. British Business Bank explains that a profitable business can face cash pressure while waiting for customers to pay, and that growth can increase that pressure. More revenue is therefore not, by itself, evidence that longer terms fund themselves.
Do not confuse agreed terms with expected behaviour
If the buyer is offered sixty days, test both payment on that date and a further delay grounded in the available evidence. Do not describe the later date as an agreed term. Keep a non-payment sensitivity separate from a delay: one removes a receipt while the other moves it. Ask the customer owner to verify purchase-order requirements, invoice routing and acceptance conditions before assuming a clean collection. Changes in legal rights, enforcement or cross-border terms need the appropriate adviser.
Write the approval conditions before sales sends the offer
Use a short decision record: eligible customer and orders; maximum outstanding exposure; forecast minimum cash and date; source of any required funding; authorised approver; review date; and the conditions for pausing further credit offers. Set limits from your own risk assessment, not a generic percentage. Do not count an unapproved overdraft or hoped-for supplier extension as available funding. If the proposed terms need financing, evaluate its actual cost, conditions and availability separately.
What the CFO should deliver
Ask for the current-terms and proposed-terms receipts schedules, a reconciliation of their difference and a downside case with named assumptions. The summary should state the maximum additional cash tied up, when it occurs and what must be approved before the offer goes out. After a pilot, compare actual payment dates with the forecast before widening eligibility. Preserve the original offer assumptions so the review can distinguish a mistaken forecast from a changed customer arrangement.