Your Payment Terms Are a Financing Decision

A founder I work with pushed for Net-60 terms to close a $250K enterprise deal last year. The customer's procurement team required it. Finance signed off. Nobody calculated what that decision cost.

By year-end, she'd made the same call on eight similar deals. Average days sales outstanding: 72 days. Average receivables outstanding: $3.8M. Annual implicit financing cost at a 6% cost of capital: roughly $228,000.

That didn't show up anywhere. Not in the P&L, not in the deal economics. It was cash that stopped working.

What DSO Actually Costs

Days sales outstanding tells you how long it takes to collect revenue. Most growing companies track it. Few translate it into a dollar figure.

Simple math: multiply your average receivables balance by your cost of capital. At $3M outstanding and 6%, that's $180,000 a year. At $8M, it's $480,000.

Neither number shows up on your P&L. Both show up in your cash position, your available credit, and your capacity to invest. Visa's Working Capital Index from earlier this year found that companies with weaker liquidity visibility face cash conversion cycles two to three times longer than peers.

DSO isn't a collections metric. It's a financing decision your sales team is making at the end of every deal.

Pricing for the Terms You Offer

Three options exist for recovering the implicit cost of extended terms. Most companies use none of them deliberately.

Term-based pricing is the most direct. Net-30 at standard price; Net-60 at +1.5% to +2.5%. Large enterprise procurement teams expect this. Many will accept rather than renegotiate. Others won't, which tells you something about your negotiating position.

Deposits on large contracts change the math faster. A 25-30% upfront payment on an annual contract with Net-60 terms materially improves your cash position without changing the deal structure. Customers who balk at deposits but don't balk at $200K invoices are outsourcing their cash management to you.

For companies with $2M or more in outstanding invoices from creditworthy customers, receivables financing can convert 80-85% of that balance within 48 hours. Factoring typically costs 1-3% of invoice value. For most companies, that's less than the opportunity cost of carrying the same invoices to term.

Why It Gets Overlooked

Extended terms feel like a sales decision. They show up in finance as a line on the AR aging report. Nobody owns the cost in between.

A simple policy closes that gap: any deal with terms beyond Net-30 requires a finance sign-off with an explicit carrying cost calculation. Not a veto. Just a number, visible before the deal closes.

Deals worth the terms will survive that scrutiny. The ones that can't won't.