As credit terms get stretched — to as much as Net 365, cash forecasting has never been more important, nor more difficult. To learn how to manage through these challenges, we spoke with four AR experts:
Customers are ‘Unilaterally Increasing Their Payment Terms’
“We have seen a significant increase in requests to approve extended terms and letters from customers stating that they are unilaterally increasing their payment terms across the board. With the increase in interest rates, companies are more and more looking for creative ways to finance their operations and this is one of the ‘go-to’ methods. Cash forecasting should account for payment terms as an input and thus the process should easily account for the change. The challenge would be with the working capital, DSO and Cash conversion cycle metrics growing unfavorably as a result of the extended payment terms.”
— Bilyana Gavrilova, AOCM, APS, APM, Shared Services Manager, Catalina
‘Creative Terms’: Stretched Payments Mean Higher Pricing
“Our customer base has become ‘creative’ concerning terms. We have been dealing with customers requesting longer terms for some time now and we have no issue accommodating with the understanding that longer terms mean higher pricing.
We also look at the supply chain for the customer relationship to align at a minimum that vendors are paid at the same terms we collect from our customers with the intent to be cash neutral. For sure if a customer is a supplier our payables are also paid longer and in fact, we look for longer terms to benefit free cash flow and working capital (i.e., collect before payment is issued).”
—Les Smeyers, Senior Finance Director, GPO, Order to Cash and AP Services, Celestica
Customers Asking For As Much As ‘Net 365’
“We are seeing credit terms trying to be extended by our customers to as much as Net 365 (I wanted to ask if they think we are crazy). It is almost a daily occurrence.
We developed a template to assess risk vs reward for increasing days to pay. This template shows by account our annual cost for extending terms along with how much we need to increase price/lb to cover our cost. It is a black and white picture to show the sales agent.”
—Lisa Rolfe, ARM, Credit & Receivable Manager, The Reynolds Company
Net 30 Becomes Net 120 With Helps Of Collections
“We have been extending our Net 30 terms. If after the 120 days it’s not paid, they are being sent to collections, but I would have been in contact with the company/person multiple times before it would get to that point.”
— Joyce Burrell, ARS, Accounts Receivable Administrator, City of Airdrie, Canada
Are you handling stretched credit terms? Share your experiences with our Executive Editor, Jess Scheer.
