Customer payment terms are a financing product
A seller offering 30, 60 or 90 days is lending through the invoice. Price, approval, concentration, disputes and collections belong in a credit policy, even when sales owns the relationship.
The World Bank's 2026 update describes high debt service, tighter finance and renewed inflation pressure across Sub-Saharan Africa. Customers operating under that pressure can ask suppliers for more time. A supplier that agrees becomes a lender through its receivable.
The loan may carry no separate contract or interest. It still consumes cash and can default.
State the credit offered
Record days, credit limit, currency, deposit, milestones, late charge, security and dispute process. “Usual terms” is not a policy.
The clock can start at invoice, delivery or acceptance. Ambiguity lets a customer delay by withholding acceptance. Define evidence.
A limit applies to all open invoices and committed orders if new delivery adds exposure. Systems should stop or escalate before dispatch.
Local law and customer type affect enforceability. Obtain current advice for standard terms.
Approve the customer
Verify legal entity, authority, bank and relevant licences. A strong brand can trade through a weaker subsidiary.
Review payment history with the company and permitted external evidence. Financial statements help when current and reliable. They do not replace transaction behaviour.
Set limit from expected margin, loss capacity and concentration, not requested order alone. A fully secured or prepaid sale differs from open credit.
Record reviewer and expiry. Customer condition and ownership change.
Price the time
Cash leaves for inventory, payroll and delivery before collection. Apply the company's funding cost to expected days and amount. Add collection and bad-debt expectation under a stated method.
A 60-day sale is not automatically twice as expensive as 30 days because payment behaviour, margin and funding differ. Calculate the cohort.
Discount for early payment can release cash and reduce revenue. Compare the discount with financing and risk saved.
Late charges can compensate and be difficult to collect. Do not rely on them in base cash.
Measure actual days
Group invoices by issue month, customer, salesperson, currency and term. Track due, paid, disputed, credit note and write-off.
Days-sales-outstanding can be distorted by growth and one large invoice. Cohort curves show what share collects by day 30, 60 and 90.
Separate disputed from undisputed late amounts. Product or billing errors need operational repair, not harder collection.
Preserve partial payments. A paid invoice flag can hide months of exposure.
Watch concentration
A company can have many customers and depend on three receivables for most cash. Show top exposures and their due dates.
Customers in one sector or public programme can share a shock. Legal diversity does not guarantee economic diversity.
Insurance, factoring and guarantees can transfer part of loss under conditions. Review exclusions, recourse and claim timing.
A customer deposit reduces exposure and can create a performance obligation. Do not treat it as free cash.
Design collection before default
Send correct invoice and evidence promptly. Confirm receipt and dispute early. Contact before due date for large amounts.
Escalation should identify owner, channel, promise-to-pay and next action. Repeated promises need a decision, not another note.
Suspending service can protect exposure and damage operations or breach contract. Define authority and critical exceptions.
Legal collection costs time and money. Preserve documents while pursuing commercial resolution.
Connect credit to sales
A salesperson can win revenue by offering longer terms. If compensation ignores cash and bad debt, the incentive transfers cost to finance.
Options include paying commission after collection, reducing credit for overdue accounts or using contribution after expected credit cost. Each can affect behaviour and retention.
Do not make sales responsible for independent credit approval. Shared targets and clear authority preserve challenge.
Report exceptions by salesperson and approver. Strategic exceptions need expiry.
Review the product
A payment-term product should show revenue, contribution, cash tied, finance cost, disputes and loss. Compare segments and terms.
Shortening every customer can reduce sales and improve cash. Extending every strong customer can waste capital. Segment from evidence.
Inflation raises the nominal amount financed for the same goods. Currency movement can increase replacement cost while a fixed local receivable waits.
The final board question belongs with incentive design: did the company sell a profitable product, or did it pay commission for issuing an unpriced loan?
Credit loss and cash are different records
Create an expected-loss view under the company's accounting policy and a cash-collection view for operations. An invoice can remain collectible and still arrive too late for payroll. Another can be written down after months of collection work while the immediate cash gap was financed earlier. Reconcile the two without forcing one measure to answer both questions.
Run a quarterly vintage review. For each month of invoices, show original value, cash collected by fixed day bands, credits, disputes, write-offs and remaining exposure. Keep customers that closed or churned in the cohort. Removing failed accounts makes recent approval rules look stronger than they were.
Use the result to change limits, deposits, evidence and sales incentives. A general bad-debt percentage can support accounts and still hide that one customer segment consumes most collection time and overdraft. Name the segment before changing terms for everyone. Record the decision and compare the next invoice vintage, because a policy change without a later cohort cannot show whether approval improved.
Sources
- World Bank, 8 April 2026: Africa Economic Update April 2026