Are you a Bank?
A while back, in another business, I found myself asking a supplier for extended terms to buy some equipment. I had been a good customer and wanted to know if they could give me 60-days on a few invoices. Their response, at first, really put me off: “Sorry, Stuart, but we’re not a bank!” Not a bank? What? I was just asking for some extra time!
The point is a real understanding of cash flows. You see, my supplier also had their own suppliers, whom they had to pay on time. If they extended me some credit, then they’d have to find the cash to pay their own invoices. They probably get that from a line of credit (I’m making some other convenient assumptions, here). They pay interest for a line of credit to a BANK. So, in order to make extended terms to their customers, they’d have to charge a fee/interest to cover their own fees/interest, thereby turning themselves into a bank. They were smart enough to know that 1. they were not in the banking business, and 2. there ARE banks out there for that reason.
Why do I bring this up? Because we’re talking about YOUR cash, the life blood of your business. Don’t allow your customers to use you as an interest-free bank. When you give ANY terms on your invoices, you are lending them money with zero interest. Your goal should be to collect that cash as soon as possible. So my advice: when asked for special terms, gently let them know you’re not in the banking business, but you know a few banks who might be able to help.
