Credit terms for business buyers: how to set them without turning into a bank

The buyer says it on the call, almost as an afterthought: "Rate is fine. Give us thirty days' credit and we will release the PO." Your salesperson says yes. The order is on the table. Two months later the first invoice is still open and three more dispatches have gone out against it. Credit terms for business buyers need four decisions made before that call: when the thirty days start, how much can be outstanding at once, who qualifies, and when supply stops. Write them on one page, and let sales agree only what the page allows.

Why "thirty days" is often not thirty days

The buyer's accounts team does not count from your invoice date. They count from the goods receipt note, or from the date the quality check passed, or from the date the invoice was "booked". Then they pay in the next payment run. Thirty days on your quotation becomes forty-five in their system, and nobody lied.

So write the start point into the quotation and ask for it on the purchase order: "30 days from invoice date". If the buyer insists on counting from goods receipt, agree it, but price it as the longer term it is.

Remember too that credit is not free to you. Every rupee outstanding is a rupee you are borrowing from your bank or your own pocket to fund the buyer's stock. A thirty-day term on a thin-margin product can eat the margin entirely. If your price was set for cash, credit is a discount you forgot to calculate.

Start from what your own cash can carry

Many owners set credit buyer by buyer, as each one asks. Work the other way round. First decide the total you can afford to have owed to you at any moment, after raw material and wages are paid. Your bank limit and your own money set that figure, and your CA can check it with you. Call it your credit budget. Every buyer's limit comes out of it.

For example, with illustrative figures: a business that can carry ₹20 lakh outstanding should not let one buyer owe ₹10 lakh, however famous the name. A buyer holding half your credit budget can stop your production by paying late once.

A limit is the most one buyer can owe you across all invoices together. Start a new buyer on advance and let the limit grow with their payment record, the same short rule our note on garages as trade buyers uses. One person who is not the account's salesperson approves every increase.

Two checks before the first credit order

Ring two of the buyer's current suppliers. Ask how many days the buyer really takes, not what the terms say. Ask whether supply has ever been held, and who in the buyer's office releases payments. A supplier who goes quiet on that last question has chased this buyer before.

Then look up the buyer's GSTIN on the GST portal and check that returns are being filed. Lapsed filings mean advance, whatever the order size. Skip credit for one-time project buyers and for any order your own cash cannot carry.

The stop rule, and the call that goes with it

A stop rule says when dispatches pause. Pick one and apply it to every buyer: no new dispatch when any invoice is past its due date by a number of days you choose, or when the total outstanding crosses the limit. Whichever comes first.

The rule fails when it is applied in anger. It works when the buyer hears it coming. Make two calls.

On the due date, the salesperson calls the buyer's accounts contact:

"Invoice 1142 for the corrugated boxes falls due today. Can you tell me when it is scheduled in your payment run, so I can plan the next dispatch?"

A week later, if it is still open, the owner or accounts head calls purchase, not accounts:

"Your next order is ready, but our policy holds dispatch once an invoice is past due, and 1142 is. If it is released this week, the boxes go the same day. Can you help me get it moving?"

The second call goes to purchase because purchase is the one who needs the boxes. It turns your overdue invoice into their stock problem, politely.

Imagine a box maker in Chakan

Imagine a corrugated box maker in Chakan, near Pune, supplying an appliance assembler at Ranjangaon. The figures are illustrative. The salesperson agreed thirty days to win the account. The buyer counted from goods receipt and paid in a payment run held twice a month. Meanwhile dispatches continued twice a week.

Within three months four invoices were open, about ₹9 lakh in all. The owner found out from the bank, stopped supply without warning, and the buyer moved to another box maker the same week. The money came in eventually. The account did not.

This time the owner wrote it down. Buyers of that size got a limit of ₹3 lakh, and every quotation said "30 days from invoice date". The stop rule and the two calls went in, with one approver for any change. The salesperson's incentive moved from orders booked to amounts collected, and the due-date call now gets made without a reminder. The first stop under the new rule held back an order worth about ₹1.2 lakh for six days (an illustrative figure), and the buyer complained; the invoice was paid that week. The next new account started on advance and earned its limit order by order.

Credit is something you trade in a negotiation

Do not hand credit over as a courtesy. When a buyer asks for longer terms, ask what you get for them: a rate contract, a larger committed volume, or acceptance of a price that covers the cost of waiting. Credit given for nothing in the first meeting is very hard to take back in the third.

Then make the policy part of how sales runs. A sheet in the accounts drawer changes nothing. A "credit approved" step before dispatch, an approver named in the system, and outstanding amounts visible to the salesperson who owns the account.

Your exposure, on one sheet

Write down every buyer who owes you money today, the amount and the date of their oldest unpaid invoice. Total the column and set it beside your credit budget. If the total is higher, the policy comes before the next dispatch. Selling to businesses on credit comes up in many trades, and the e-commerce sales and marketing pages show where it fits by product. To build the policy, the two calls and the dispatch check with your team, tell us what you need; negotiation and closing support and sales process design and implementation are the related services.