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Amrendra Kumar Saha
- Experienced Procurement And Contract Management Professional
If payment terms are changing from 30 to 60 days. Assuming monthly invoicing and relatively constant invoice amounts, is there a cost of mon
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Hi, Greetings Whenever any commercial is proposed or agreed it covers two parts 1 total cost and 2 Profit margin considered in Business Transaction. Whenever we calculate total cost it also takes care about the Invoicing cycle along with payment cycle. In case if Invoicing cycle or Payment cycle increases due to any reason then it means we are accepting extra credit period. Extra credit period affects the Profit margin which was considered at the time of Business modelling. If any company is working with their own cash surplus then impact of Payment terms from 30 days to 60 days have low impact and can be absorb by the seller and simultaneously such extra credit to supplier makes them more competitive and it aso brings enhanced customer relationship. In case if supplier is working with borrowed money or is involved in just trading then change in payment terms will badly affect their Profit margin. Some times in Business such situation is agreed by Supplier with the view to have more potential business in future. The actual impact can be analysed only when more details are available and objective of Business model is analysed with such change. Regards, A.K.SAHA
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