Payments & Payment Terms: Strategic Financial Management
Your goods have arrived. Now manage payment: timing, terms, currency, discounts.
Payment Terms: The Basics
Payment terms tell you when to pay after delivery.
Common terms:
NET 30 (Most common)
├─ Delivery: September 30
├─ Invoice date: September 30
├─ Payment due: October 30 (30 days later)
├─ Your advantage: 30 days to verify goods, confirm quality
└─ Use: Standard for most suppliers
NET 15 (Fast payment)
├─ Payment due: 15 days after invoice
├─ Supplier advantage: Cash faster
├─ You may get: Small discount (1%)
└─ Use: Small orders, trusted suppliers
NET 60 (Extended payment)
├─ Payment due: 60 days after invoice
├─ Your advantage: Better cash flow
├─ Supplier may: Charge slight premium (1-2%)
└─ Use: Large orders when cash is tight
NET 90 (Very extended)
├─ Payment due: 90 days after invoice
├─ Rare in modern business
├─ Usually negotiated for large orders
└─ Supplier's cost: Risk of late payment
COD (Cash on Delivery)
├─ You pay: When goods are delivered
├─ Advantage to you: Verify before paying
├─ Disadvantage: Higher costs (supplier risk premium)
└─ Use: Unproven suppliers, high-value orders
PRE-PAYMENT
├─ You pay: Before goods ship
├─ Risk: Supplier delays or fails to deliver
├─ Use: Avoid with unknown suppliers!
└─ Only use: Trusted suppliers with proven track record
Early Payment Discounts: The ROI Decision
Common format: 2/10 NET 30
Meaning:
├─ Full amount: €6,525 (due October 30)
├─ OR: Pay 2% discount if paid by October 10
├─ Discount amount: €6,525 × 2% = €130
├─ Early payment cost: €6,525 - €130 = €6,395
│
Math:
├─ Save €130 by paying 20 days early
├─ ROI: (€130 ÷ €6,395) × (365 ÷ 20) = 37.6% annual return!
│
Decision:
├─ Do you have €6,395 cash available now?
├─ YES? → Pay early, earn 37.6% (excellent!)
├─ NO? → Pay on day 30, no discount
└─ Rule: If you have cash, early payment is smart
Example Calculation
PO: €6,525 @ "2/10 NET 30"
Scenario A: Pay by day 10
├─ Cash outlay: €6,395 (saves €130)
├─ You lose: €130 discount if you don't pay
├─ ROI if paid: 37.6% annual
└─ Should you? YES (if cash available)
Scenario B: Pay by day 30
├─ Cash outlay: €6,525 (no discount)
├─ You keep: €130 as cost of staying liquid
├─ You gain: 20 more days of cash use
└─ Should you? Only if you need the cash flow
Note: 37.6% annual return beats most investments!
Payment Terms & Cash Flow
Impact on Working Capital
Example: 10 suppliers, each €10,000/month orders
NET 30 terms:
├─ Month 1: Order €10,000 (pay in October)
├─ Month 2: Order €10,000 (pay in November)
├─ Month 3: Order €10,000 (pay in December)
├─ Average: €10,000 owed at any time
└─ Cash impact: 30 days of inventory floating
NET 60 terms:
├─ Month 1: Order €10,000 (pay 60 days later)
├─ Month 2: Order €10,000
├─ Month 3: Order €10,000
├─ Average: €20,000 owed at any time
└─ Cash impact: 60 days of inventory floating (DOUBLE!)
Impact:
├─ NET 60 costs you: €10,000 extra cash tied up
├─ € 10,000 @ 10% interest = €1,000/year cost
└─ Negotiate: Only if you can't get better rates elsewhere
Negotiating Payment Terms
Supplier default: NET 30
Scenario 1: You need longer terms
├─ Your request: "Can we do NET 45?"
├─ Supplier may ask: "Any discount for NET 30?"
│ └─ They want cash faster
│ └─ Offer: "Pay NET 30, no discount"
├─ Supplier: "OK, then NET 45 at +2% premium"
└─ You: Decide if +2% premium (€130) < benefit of extra 15 days
Scenario 2: You want to pay faster (for discount)
├─ Your request: "Can we do 3/10 NET 30?"
├─ Supplier may: Already offer this (check their terms)
└─ You: Pay day 10, save 3% (even better than 2%!)
Scenario 3: Large order negotiation
├─ Your order: €100,000 (big deal for supplier)
├─ Your request: "For this volume, NET 60 with 1% discount?"
├─ Supplier: "OK" (happy to have large stable order)
└─ You: Get better terms + discount
3-Way Match: Invoice Verification
Before paying, verify three things match:
The 3-Way Match:
Document 1: Purchase Order (your order)
├─ Supplier: ABC Manufacturer
├─ Product: Winter Jacket
├─ Quantity: 145 units
├─ Unit price: €45
├─ Total: €6,525
└─ Date: August 15
Document 2: Receipt (what arrived)
├─ Supplier: ABC Manufacturer
├─ Product: Winter Jacket
├─ Quantity: 145 units ✓ (matches PO)
├─ Condition: Good
└─ Received: September 30
Document 3: Invoice (what you're being charged)
├─ Supplier: ABC Manufacturer
├─ Product: Winter Jacket
├─ Quantity: 145 units ✓ (matches PO & receipt)
├─ Unit price: €45 ✓ (matches PO)
├─ Total: €6,525 ✓ (matches PO)
├─ Payment terms: NET 30 ✓ (matches PO)
└─ Date: September 30
All three match?
├─ YES → Pay the invoice ✓
└─ NO → Hold payment, investigate discrepancy
When the 3-Way Match FAILS
Scenario 1: Quantity mismatch
├─ PO: 145 units
├─ Receipt: 143 units (2 missing)
├─ Invoice: €6,525 (for 145 units)
├─ Problem: Invoice doesn't match receipt!
└─ Action: Hold payment, adjust invoice to 143 units
└─ New amount: €6,525 × (143÷145) = €6,435
Scenario 2: Price mismatch
├─ PO: €45/unit
├─ Receipt: 145 units
├─ Invoice: €50/unit (supplier raised price!)
├─ Problem: Invoice price doesn't match PO!
└─ Action: Hold payment, contact supplier
└─ Negotiation: "We agreed €45. Will not pay €50."
Scenario 3: Invoice for wrong product
├─ PO: Winter Jacket
├─ Receipt: Winter Jacket
├─ Invoice: Summer Shirt (wrong product!)
├─ Problem: Complete mismatch
└─ Action: Refuse payment, return goods
Payment Currency (Separate from PO Currency)
Critical: Payment currency can differ from PO currency!
Timeline:
PO Created: August 15
├─ Currency: EUR (supplier's currency)
├─ Amount: €6,525
├─ Exchange rate: 1 EUR = 1.10 USD
├─ PO cost in USD: €6,525 × 1.10 = $7,177.50
Delivery: September 30
├─ Goods received: 145 units ✓
├─ Synplex records: PO cost = $7,177.50 USD
Invoice Received: October 1
├─ Amount due: €6,525 (same)
├─ Due date: October 30 (NET 30)
Payment: October 30
├─ Exchange rate TODAY: 1 EUR = 1.05 USD (rate dropped!)
├─ Actual payment: €6,525 × 1.05 = $6,850.50
├─ Your cost in USD: $6,850.50 (not $7,177.50!)
└─ Savings: $7,177.50 - $6,850.50 = $327 from rate change!
Strategic Decision: When to Pay?
PO due: NET 30 (October 30)
Exchange rate tracking:
Oct 1: 1 EUR = 1.05 USD (cost: $6,850)
Oct 10: 1 EUR = 1.04 USD (cost: $6,786) ← BETTER!
Oct 20: 1 EUR = 1.03 USD (cost: $6,721) ← BEST!
Oct 30: 1 EUR = 1.02 USD (cost: $6,654) ← EXCELLENT!
Decision:
├─ Can you pay Oct 30 (last day)? YES
├─ Should you wait? YES
├─ Savings by waiting 30 days: $523 (8.5%)!
├─ In EUR terms: Still €6,525 (same)
└─ Your gain: Exchange rate works in your favor!
When to Pay Earlier (Lock in Rates)
PO due: NET 30 (October 30)
But exchange rate is unfavorable and rising:
Oct 1: 1 EUR = 1.08 USD (cost: $7,047)
Oct 10: 1 EUR = 1.09 USD (cost: $7,113) ← WORSE!
Oct 20: 1 EUR = 1.10 USD (cost: $7,178) ← WORSE!
Oct 30: 1 EUR = 1.11 USD (cost: $7,243) ← WORST!
Decision:
├─ Rates are rising (EUR getting more expensive)
├─ Should you wait until Oct 30? NO!
├─ Should you pay early? YES
├─ Pay Oct 1 at 1.08 rate
├─ Cost: $7,047 (saves $196 vs. Oct 30!)
└─ In EUR terms: Still €6,525 (same), but USD cost better
Multi-Currency Payment Scenario
Your company: US-based (USD)
Suppliers: Germany (EUR), UK (GBP), China (CNY)
Monthly payments:
├─ Germany supplier: €10,000 due Oct 30
├─ UK supplier: £8,000 due Oct 25
├─ China supplier: ¥500,000 due Oct 20
Exchange rates today:
├─ 1 EUR = 1.10 USD → €10,000 = $11,000
├─ 1 GBP = 1.25 USD → £8,000 = $10,000
├─ 100 CNY = 14 USD → ¥500,000 = $70,000
Total payments: $91,000 USD (end of October)
Strategy:
├─ Pay China early (by Oct 20) if rate is favorable
├─ Pay UK mid-month (Oct 25)
├─ Pay Germany late (Oct 30, rates dropping?)
└─ Save: Monitor rates, time payments strategically
Payment Methods
Wire Transfer (Most common)
Process:
├─ Bank transfer directly to supplier's account
├─ Timing: 1-3 days to arrive
├─ Cost: Wire fee ($15-50 per transfer)
├─ Use: International suppliers, EUR payments
└─ Advantage: Safe, no cash on hand
Credit Card
Process:
├─ Pay via credit card (if supplier accepts)
├─ Timing: Immediate (card charged)
├─ Cost: 2-3% surcharge (supplier or you pays)
├─ Use: Smaller orders, US suppliers
└─ Advantage: Dispute protection, cashback points
Check
Process:
├─ Send check by mail
├─ Timing: 5-7 days to clear
├─ Cost: Minimal (check fee $0.50-$1)
├─ Use: Rare, domestic suppliers only
└─ Advantage: Can mail, no wire fee
ACH (US transfers)
Process:
├─ Automated clearing house (US domestic)
├─ Timing: 1-2 days
├─ Cost: $0-5 per transfer
├─ Use: US suppliers
└─ Advantage: Fast, cheap
Recording Payment in Synplex
Step 1: Invoice Received
In Synplex:
├─ Go to PO: PO-2024-001
├─ Goods already received: DELIVERED
└─ Status: Waiting for invoice payment
Step 2: Match Invoice
3-way match check:
├─ PO: 145 units, €6,525 ✓
├─ Receipt: 145 units received ✓
├─ Invoice: €6,525 ✓
└─ All match → Proceed to payment
Step 3: Record Payment
In Synplex:
├─ Click: [Record Payment]
├─ Amount: €6,525
├─ Payment currency: EUR
├─ Payment date: October 30
├─ Exchange rate: 1 EUR = 1.05 USD
├─ Amount in USD: $6,850.50
└─ Status: PAID
Step 4: Confirmation
Payment sent:
├─ Wire confirmation received
├─ Synplex status: PAID
├─ PO fully closed
├─ Receipt kept for audit
└─ Cycle complete
FAQ
Q: What if invoice amount differs from PO?
A: Hold payment. 3-way match must be exact. Contact supplier to correct invoice.
Q: Can I negotiate payment terms after sending PO?
A: Yes, usually. Send amendment request. Supplier may accept (doesn't affect goods). Confirm before paying differently.
Q: Should I pay early to get discounts?
A: If you have cash available, YES. 2/10 NET 30 = 37.6% annual return (excellent!).
Q: What if currency rate moves significantly?
A: That's why payment currency is separate from PO. You can benefit if rate moves favorably, or time payment to lock better rates.
Q: Can I refuse payment if goods are defective?
A: You have rights. Negotiate with supplier. Options: replacement, credit, partial payment. Don't just refuse (supplier may sue).
Q: How long should I keep invoices and payment records?
A: 7 years (tax & audit requirements). Synplex can store digitally.
Next Steps
- Receive goods (File 03)
- Verify 3-way match (this file)
- Monitor payment date (track terms)
- Pay strategically (especially with currency!)
- Close PO (status = PAID)
Related
- File 01: Creating POs — Where terms are set
- File 03: Shipments & Receiving — Before paying
- File 06: Currency Handling — Deep dive on currency
Questions? Contact support@synplex.io