When a customer moves you from net-30 to net-90 payment terms, the cash tied up in its invoices roughly triples, even though your sales have not grown by a dollar. For a growing company, that gap usually lands on the bank line or on suppliers. The way out starts with sizing the gap precisely, then matching it with financing that grows with your receivables instead of against them.
What do longer payment terms actually change?
A payment term is the number of days a customer has to pay an invoice. "Net-30" means payment is due 30 days after the invoice date; "net-90" means 90. Until the customer pays, the sale sits on your balance sheet as accounts receivable: revenue you have earned and booked but cannot yet spend.
Longer terms do not change the size of the sale or its margin. They change how long your cash is out of the business. Payroll, freight, rent and suppliers keep their own schedule, and none of them waits 90 days because your customer does.
Stated terms are also a floor, not a forecast. When we review a company's receivables, one of the first things we compare is the terms on each invoice with the days customers actually take to pay. The measure for that is days sales outstanding (DSO): the average number of days it takes to collect a sale. A customer on net-90 that pays in 105 days is, for cash purposes, a net-105 customer.
How much cash do net-90 payment terms tie up?
A useful rule of thumb: the receivables a customer generates are roughly its monthly sales multiplied by the number of months it takes to pay.
Consider a hypothetical distributor that sells US$2M a month to one national customer. On net-30, about US$2M of that customer's invoices are outstanding at any time. On net-90, it is about US$6M. Sales are unchanged, and the business now has to finance an extra US$4M that used to come back within the month.
The cash conversion cycle shows the same gap from the operating side. It is the number of days between paying for inventory and collecting from the customer: days of inventory, plus days of receivables, minus the days your own suppliers give you. If the same distributor holds 45 days of inventory and pays its suppliers in 30, its cycle runs 45 days on net-30 terms (45 + 30 − 30) and 105 days on net-90 (45 + 90 − 30). For 60 more days, every dollar of that customer's business is funded by you.
Run this arithmetic before you agree to the terms, customer by customer, using actual payment days rather than the terms on the contract. It turns "the customer wants net-90" into a number your bank, your board and your suppliers can respond to.
Why does the bank line run out first?
Most growing companies fund the gap with their revolving line. The difficulty is that the line was usually sized on last year's financial statements, while the receivables are growing this year. Several things tend to bite at once:
- The limit does not move with sales. A fixed commitment that was comfortable at net-30 can be fully drawn at net-90.
- Concentration limits. Many bank facilities cap how much of the borrowing base a single customer can represent, so the largest and most creditworthy customer can end up the least financeable.
- Covenants. Higher borrowings and slower collections can push leverage or liquidity ratios toward their limits.
When the line is full, the pressure moves to suppliers. Stretching your own payables to fund your customer's terms can cost early-payment discounts and supplier goodwill, and it shortens the runway for the next order.
Should you push back on net-90 or finance it?
Not every request for longer terms should be accepted, and not every one should be refused. A few questions sort them out:
- Is the customer's credit strong? Long terms to a creditworthy customer are a timing problem. Long terms to a weak one are a credit problem, and a lender will look at that customer as closely as you should.
- Is the business recurring? One large order on net-90 is a bridge. A permanent shift in terms is a new working capital requirement that needs a permanent answer.
- Can the terms be shaped? Partial deposits, milestone billing on long projects or an early-payment discount can bring part of the cash back sooner.
- Is the cost in the price? Carrying receivables for an extra 60 days has a financing cost. If the margin on the account does not absorb it, the terms are worth renegotiating before the volume grows.
If the answers point to a good customer, recurring volume and terms that will not move, the receivables themselves are usually the most direct source of the capital.
Which financing structures fit long payment terms?
Two structures are built for this situation, because both are sized on the receivables rather than on last year's earnings.
Receivables financing provides capital against invoices you have already issued to creditworthy customers; factoring is one form of it. As sales to those customers grow, the capital available grows with them, which is the opposite of what happens with a fixed bank limit.
Asset-based lending (ABL) is a revolving line secured by receivables and often inventory. Availability is set by a borrowing base: a calculation, updated regularly, of how much the eligible collateral supports. It suits companies that need a broader line across the whole working capital cycle, not just one customer's invoices.
In the United States, a lender's security interest in receivables is governed by Article 9 of the Uniform Commercial Code (opens in a new tab), so an existing lien from your bank will shape how a new structure fits. Bring your current facility agreement to the first conversation; it answers many questions early.
How we work on this
We start with the receivables themselves: who your customers are, what terms they are on and how they actually pay. From there we structure receivables financing or asset-based lending around the gap you have sized, either as your primary lender or alongside an existing bank facility where the bank's terms allow it. Terms and pricing are set during credit review, once we understand the business, not before.
Frequently asked questions
Is net-90 normal?
Longer terms are common when a smaller supplier sells to a much larger customer, particularly in retail, distribution and some industrial markets. Whether it is normal matters less than whether your business can carry it, and the arithmetic above answers that.
Can I finance the invoices of just one large customer?
It depends on that customer's credit quality and on how much of your sales it represents. Concentration is one of the first things a lender looks at, and it shapes how a facility is structured.
What does receivables financing cost?
Pricing depends on the structure, the customers and the collateral, and it is set during credit review rather than quoted in a first conversation. We explain how a structure is built before any terms are discussed.
If a customer is asking for net-90, contact a director before you agree and we will help you put a number on the gap.