Last Updated July 30, 2025
While most businesses stick to payment terms of 30 days or less, it isn’t unusual to see longer payment terms of 60 or even 90 days. While these terms can be beneficial to buyers, these extended payment terms can present unique challenges to vendors.
By understanding how to utilize payment terms properly and how to manage the challenges associated with extended payment terms, you can keep your own cash flow in good shape. Continue reading to learn more.
What Are Extended Payment Terms?
Extended payment terms usually include any payment terms longer than net 30. Rather than having up to 30 days to pay an invoice in full, some buyers may request 45, 60, 90, or even 120 days to pay the invoice.
This is more common in industries like manufacturing, transportation, and construction, which have longer project timelines. Extended payment terms are also relatively common with consumer packaged goods, retail, and pharmaceuticals. This is especially true when larger corporations are involved, as they have more leverage to push for longer payment terms with their suppliers.
With these examples of extended payment terms, the lengthy period usually results from negotiations between the buyer and the supplier. These negotiations are concluded before services are rendered and an invoice is issued. However, there are also situations when a client may request extended terms after they receive an invoice with standard terms, or after they’ve been doing business with a supplier for a while.
Common Challenges Associated With Extended Payment Terms
Extended payment terms may be helpful for buyers, but they can create significant challenges for sellers. Here’s why it’s generally best to avoid offering extended payment terms to your own customers.
Cash Flow Problems
Perhaps the biggest cost of extending payment terms to customers is the potential for creating cash flow problems. Delayed customer payments can leave your own business without enough incoming cash to cover its outflows. Over time, this could deplete your cash flow and leave you unable to cover expenses or make needed investments in your business. If cash flow problems persist over a prolonged period, it could be enough to put your company out of business.
Working Capital Shortages
Working capital measures your business’s liquidity and its ability to meet its short-term financial obligations. Extended payment terms could result in negative working capital, where your liabilities are higher than your assets. This could make it challenging to cover immediate operational costs like payroll or rent. Your business also becomes more vulnerable to unexpected market downturns or other setbacks.
Increased Risk of Non-Payment
With longer payment terms, you also run a greater risk of clients not paying at all. From a supplier’s perspective, it’s all too easy for payment reminders to slip through the cracks when you have lengthy payment terms. The buyer could experience financial difficulties of their own before their payment date arrives, leaving them unable to make the payment.
Unpredictable Financials
Even when clients do pay, lengthy payment terms can make it hard to have a dependable and predictable cash flow. For example, with a net payment term of 120 days, the client could technically pay any time during that four-month period. It’s harder to account for your own budget calculations when you can never be certain how long it will be until you receive payment. A lack of sufficient cash could even cause you to miss out on other business opportunities.
Difficulty Renegotiating Terms
Once you engage in an extended payment terms agreement, it is hard to get out of. Buyers are unlikely to want to exit a payment setup that is more favorable for them. You likely won’t be able to renegotiate payment terms until the end of the current contract.
How to Mitigate Problems Associated With Extended Payment Terms
While extended payment terms can definitely be challenging, there are still steps that your business can take to mitigate these issues and encourage timely payment from your customers.
Use Invoice Factoring
Invoice factoring is a solution that allows you to sell your unpaid invoices to a factoring company in exchange for a cash advance. Factoring costs typically range from 1-5% of the total value of the invoice. The factoring company provides the majority of the value of your invoice up front, then assumes responsibility for collecting payment from your client. Once the invoice is paid, you receive the remainder of the value of the invoice, minus the factoring fee. This provides quick access to working capital without needing to take on additional debt.
Try to Renegotiate With Customers, Especially if You Have a Good Relationship
There’s no guarantee that your customers will be willing to renegotiate payment terms, but it doesn’t hurt to try. If you have a positive relationship with your clients, you can reach out to explain your situation and ask if they would be willing to begin using shorter payment terms. Generally speaking, you’ll likely have greater success making a gradual or scaled adjustment or negotiating in other areas (such as sales price or volume), rather than trying to simply slash your payment terms.
Optimize Your Invoicing Practices
Improving your invoicing processes can also ensure you get paid faster. Invoice automation and electronic invoicing can help ensure that accurate invoices are sent promptly to your clients. Automation can also help you stay on top of tasks like sending reminder emails to your clients to encourage timely payment. Invoice tracking tools can be used to monitor which invoices have been paid, are nearing the due date, or are overdue.
Offer Early Payment Discounts to Encourage Prompt Payment
Offering an early payment discount can also encourage your clients to make their payment before the end of the payment period. Many businesses offer a small percentage discount to get paid faster. For many, missing out on 1-2% of the value of the invoice is a worthwhile tradeoff for getting paid sooner.
Enforce Late Fees
No matter how long your payment terms might be, you should include late fees as part of your contract. Charging late fees can be a powerful motivator that encourages customers to pay on time. Even more importantly, however, you must enforce those late fees if a client doesn’t pay. Sending reminder emails before payment is due and providing an updated invoice when late fees need to be added will make it clear that you expect to collect late fees when necessary.
How to Ask Suppliers for Extended Payment Terms
Of course, there are also times when you might need to make a request for extended payment terms with your own suppliers. This request should typically come in an extended payment terms letter or through a formal meeting.
When asking for extended payment terms from suppliers, you should consider which suppliers have the biggest impact on your work and how the payment terms of different suppliers currently affect your cash flow. Additionally, you should consider which suppliers you have the strongest relationship with. This will help you determine which suppliers should be the target for your request.
When you ask for extended terms, be transparent. Explain why you’re requesting longer terms, such as better aligning with your payment cycles or improving cash flow. Then, make a specific request, such as extending to net 45 or net 60 terms.
You should also propose solutions that will make this beneficial for your supplier. For example, with extended payment terms, you might be able to commit to increased order volume or a longer-term service contract. At the same time, you should be prepared to compromise and negotiate with your supplier. You may not get the full extension you initially hoped for, but if you have an acceptable minimum and negotiate in good faith, you should be able to find a solution that works for both sides.
Remember, your goal shouldn’t solely be to get longer payment terms. You want to maintain and build upon the quality relationship you’ve already established so you can keep your business running smoothly. Of course, if you can’t get the payment terms you need, you should also be ready to start working with alternative suppliers.
In-Summary: Extended Payment Terms
Extended payment terms can be very helpful for buyers, while creating working capital and cash flow challenges for suppliers. As a supplier, you should try to avoid offering extremely lengthy payment terms when possible. When you do use extended payment terms, make sure your invoicing processes, including early payment discounts and late fees, encourage and enable prompt payment.
From the buyer’s perspective, negotiate in good faith when you need to ask for extended payment terms. Try to find ways to make it a win-win solution that will mitigate risk for your supplier, even as you make your own cash flow more manageable.
Navigating extended payment terms can be complicated, but when buyers and suppliers work together and follow through on their commitments, it can work out for both parties.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.
