How to Offer Flexible Payment Terms Without Becoming the Lender

Why Payment Flexibility Creates a Dilemma

Customers often want more time to pay, especially on larger orders. Refusing that flexibility can cost a sale, or push a customer toward a competitor who offers it. But saying yes usually means the supplier is now funding the customer's purchase out of its own working capital, without necessarily intending to become a lender.

Most suppliers do not set out to finance their customers. It tends to happen gradually, one accommodating decision at a time, until offering terms is simply how the business operates. Stepping back and looking at the options available makes it easier to choose deliberately, rather than by default.

Five Ways to Structure Customer Payments

• Require full payment upfront. Simplest for the supplier, but can lose orders from customers who need time to pay.
• Take deposits or use milestone payments. Reduces exposure on larger jobs without removing it entirely, and works well where the order has natural stages.
• Operate an internal trade account. Familiar to customers, but the supplier sets the credit policy, manages collections, and carries the risk until paid.
• Refer customers to traditional finance. Moves the funding outside the business, though it adds a separate process the customer has to complete, often disconnected from the sale itself.
• Offer externally funded business instalments. The supplier is paid upfront by a provider such as PaidTerms, and the customer repays that provider directly over an agreed schedule.

Which Options Leave the Supplier Carrying the Receivable

Requiring payment upfront removes the receivable entirely, but at the cost of flexibility. Deposits and milestone payments reduce it, but do not remove it. An internal trade account keeps the full receivable, and the risk, with the supplier for the length of the term. Referring customers to outside finance moves the funding elsewhere, but is a separate process from the sale. Externally funded instalments are the only option on this list where the supplier is paid upfront while the customer's repayment schedule sits with someone else.

Seen this way, the choice is less about which option is best in general, and more about how much of the receivable a supplier is willing to carry for a given customer or order.

How Externally Funded Instalments Work

With PaidTerms Capital, an eligible customer applies for or selects an instalment option on an invoice. PaidTerms assesses the application and, once approved, pays the supplier the full invoice amount upfront. The customer then completes their scheduled repayments directly with PaidTerms, not with the supplier. The supplier does not manage the instalment collection schedule itself; that responsibility sits with PaidTerms once the invoice has been funded.

Practical Places to Introduce Instalments

Payment flexibility works best when it is visible before a customer has committed to how they will pay, rather than offered only once an invoice is already overdue. This is the idea behind embedded instalments: bringing the option into quotes, sales conversations, websites, invoices and Xero workflows, rather than treating it as a separate process a customer has to seek out.

Questions to Consider Before Offering Instalments

Before deciding how to structure customer payments, it helps to look honestly at how much informal credit is already being extended, and where.

• Which customers or order sizes would actually benefit from a scheduled repayment option?
• Are you currently extending informal credit that could instead be funded upfront?
• Where in your sales process would customers naturally see a payment flexibility option?
• Does your invoicing already run through Xero, and could that connection be used?
• Would a mix of approaches, rather than one policy for every customer, suit your business better?

How PaidTerms Capital Works

PaidTerms Capital connects to Xero and lets suppliers offer instalments on eligible invoices without funding the repayment period themselves. To understand the basics first, see what business instalment payments are, and for the costs of the alternative, read about the hidden cost of offering trade credit.

Frequently Asked Questions