Payment Terms Are Price: What a 90-Day Receivable Really Costs
You held the price and agreed to 90 days. You gave a discount either way. You just didn't call it one.
Summary
- Waiting to be paid costs roughly your cost of money times days waited over 365. At 14%, ninety-day terms cost about 3.5% of the invoice.
- A price discount is recorded in four places and approved by someone. Payment terms sit in a clause, never reach a discount report, and are given away freely.
- Price the terms instead of conceding them: a published terms grid, terms traded in the give-get, and the cost shown on the quote.
There's a moment in most Indian B2B negotiations where the buyer stops pushing on price and starts pushing on terms.
"We can do your number. We just need 90 days."
And the salesperson agrees, because it isn't the price, and holding the price was the instruction. They walk out having won. The deal gets reported at full value. Nobody records a discount, because nobody gave one.
Except you did. You just gave it in a currency nobody in the room was counting. It's one of the quieter ways pricing leaks.
The number
Here's the arithmetic, and it's simple enough to do in your head. The cost of waiting to get paid is roughly:
Your cost of money × (days you wait ÷ 365)
At a 14% cost of capital:
The cost of payment terms at a 14% cost of capital
| You wait | It costs you |
|---|---|
| 30 days | 1.2% of the invoice |
| 45 days | 1.7% |
| 60 days | 2.3% |
| 90 days | 3.5% |
| 120 days | 4.6% |
| 180 days | 6.9% |
So a ₹40 lakh contract on 90-day terms costs you about ₹1.4 lakh compared to being paid on delivery. On 120 days it's ₹1.85 lakh.
That's not a rounding error. On most deals it's larger than the discount your team spent three weeks fighting about.
Why nobody counts it
Same reason nobody counts waived implementation.
A price discount appears on the quote, the invoice, the CRM and the discount report. Four places, and somebody has to approve it.
Payment terms appear in a clause. They don't touch the price line. They never reach a discount report. The finance team feels the consequence months later, as a cash problem, and by then nobody connects it to a negotiation that happened in January.
So you end up with a company that governs discounts carefully and gives away terms freely, when the second is often the more expensive of the two. On the waterfall from list price to pocket price, it's one of the steps below the invoice line.
Use your real cost of money
The table above uses 14%. Use your own number.
If you're borrowing from a bank at 11%, use 11%. If you're funding working capital from you raised, your real cost is considerably higher than any bank rate: that money was expensive and it has an opportunity cost. If you're an MSME using invoice discounting or a channel finance line, use that rate.
Whatever it is, it's a real number, and it belongs in your floor alongside your delivery costs.
Price the terms, don't concede them
Once you can put a figure on it, terms become something you trade rather than something you surrender.
Build a terms grid. Publish different effective prices for different payment terms, so the choice is visible and priced rather than negotiated blind. Something like:
An example terms grid
| Terms | Price |
|---|---|
| Advance, in full | List less 3% |
| 50% advance, balance on delivery | List less 1.5% |
| 30 days | List |
| 60 days | List plus 1% |
| 90 days | List plus 2.5% |
Two things happen when you put this in front of a buyer. Some of them take the advance option, because their cost of money is lower than yours and the discount is genuinely attractive to them. And the ones who need 90 days now understand they're choosing something, rather than extracting something.
Make it part of the give-get. If a customer wants 90 days, that's fine. What are you getting for it? A longer contract. A higher volume commitment. A reference. Terms are a concession like any other and should be traded like one.
Put the cost on the quote. Even if you don't charge for it, showing the line makes it visible internally. You cannot govern what you never record.
When advance payment is worth more than the discount
Worth being clear about this, because founders often under-price advance payment.
If you're cash-constrained, and most growing Indian companies are, receiving money now is worth considerably more than the 3.5% arithmetic suggests. Cash you have today funds inventory, hiring, or a campaign. Cash arriving in ninety days funds nothing in the meantime.
That means a 4 or 5% advance-payment discount can be a good deal even though the pure financing maths says 3.5%. You're not just saving interest, you're buying the ability to act.
The opposite is also true. If you have cash sitting idle, extending terms to win a deal is cheaper for you than for your competitors, and that's a genuine, if temporary, advantage.
Either way, make it a decision rather than a default.
The collections cost nobody prices
One more item, and it's bigger than it looks.
Getting paid at 90 days assumes the customer pays at 90 days. In Indian corporate and PSU business, they frequently don't.
Which means the real cost includes someone chasing the invoice, escalations, the founder's own time on a call with a payables department, and occasionally a discount given at the end simply to get the money released.
Founder time chasing a receivable is the most expensive labour in your company.
It never appears in any cost calculation, and it should at least appear in the conversation when you're deciding whether a customer on 120-day terms is worth having.
Know where you stand as a supplier
A practical point for smaller businesses.
There are provisions in Indian law intended to push large buyers to pay registered micro and small enterprises within a defined window, with consequences for the buyer if they don't. The details have changed in recent years and vary by the buyer's situation, so check the current position with your CA.
But the point worth knowing is that you may have more standing to ask for shorter terms than you assume. Many small suppliers accept long terms because they believe they have no choice, and sometimes that belief is out of date.
Where to start
Take your last twelve months of invoices and work out your actual average days to collect. Not your stated terms, your actual collection.
Apply your real cost of money.
The number you get is a discount you've been giving every single month without anyone approving it, recording it, or getting anything in return for it.
Then add it to your floor, and build the terms grid.
Our Pricing Maturity Assessment covers this alongside your cost floor and the rest of your pricing, so you can see how much of your leakage sits in terms rather than in headline discounts.
Frequently asked questions
How do I calculate the cost of payment terms?
Multiply your cost of capital by the number of days you wait divided by 365. At a 14% cost of capital, 90 days costs roughly 3.5% of the invoice value. Use your own cost of money: for a company funding working capital from equity, it's considerably higher than a bank rate.
Should I offer a discount for early payment?
Often yes, if you're cash-constrained. A 3 to 5% discount for advance payment is frequently cheaper than carrying a 90-day receivable, and the cash arriving now has value beyond the interest saved. Make it a published option in a terms grid rather than an ad-hoc concession.
Are payment terms really part of pricing?
Yes. Price and terms together determine what you actually keep. A company that holds its headline price while giving 120-day terms has taken a discount of around 4.6% and recorded nothing, which is why terms belong in the same governance as discounts.
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