The biggest threat to a company’s working capital strategy is now commonly hiding in a perfectly drawn up sales contract, not an overdue invoice.
Finance departments can automate collections, optimize cash forecasts and accelerate reconciliation. But when commercial teams negotiate longer payment terms to win customers, the cost of financing growth gets decided before treasury enters the conversation.
Longer payment terms have become an established negotiating tool, particularly when large enterprise customers can leverage their purchasing power to demand more flexibility from suppliers. And for commercial teams, extending payment terms can appear to be a relatively inexpensive way to close a deal without reducing its headline price.
But for finance, these sales tactics are anything but free. The single concession of giving customers another 30, 60 or 90 days to pay ultimately offloads the cost of financing that decision to the treasury and CFO office.
Read more: Buyers Want to Pay Later. Suppliers Want Cash Earlier. Who Funds the Difference?
The Hidden Working Capital Cost of Keeping Customers Happy
The underlying problem isn’t necessarily that sales teams are making bad decisions. It’s that many companies evaluate commercial success and working capital performance through different financial lenses. For CFOs, bringing those measures together represents an opportunity to improve the quality of growth, not simply its volume.
After all, a deal that appears profitable on paper can become considerably less attractive once financing costs, collection risk and capital requirements are considered.
Consider a business generating $500 million in annual credit sales. If its average collection period increases by 15 days, approximately $20.5 million in additional cash becomes tied up in receivables, assuming sales remain constant. At an illustrative 8% annual financing cost, that amounts to roughly $1.6 million in incremental annual carrying costs.
That creates a contradiction for CFOs. Finance can optimize virtually every process involved in collecting receivables, but those improvements may be overwhelmed by commercial decisions made months earlier. Automation has made it easier to execute financial processes efficiently. But operational efficiency alone cannot guarantee strong cash performance when the underlying commercial decisions create liquidity demands.
A company cannot automate its way out of payment terms it has already agreed to.
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That makes it essential to distinguish between two fundamentally different sources of working capital pressure: customers paying later than agreed and customers paying exactly when their contracts permit. The first is primarily an execution problem. The second is a commercial policy decision.
“The core problem is work happens in one place, and payments happen in another. People are stitching that together manually, which can create delays and errors as volume grows,” Ryan Taylor, SVP Product Management, Mobility & Payments at WEX, told PYMNTS.
See also: Working Capital Is Becoming a Priced Portfolio for CFOs
Why Better Collections Can’t Fix Challenging Payment Terms
A business might improve collections performance while still experiencing deteriorating working capital efficiency because newly negotiated contracts are extending the time between revenue recognition and payment.
And moving finance upstream doesn’t mean requiring treasury approval for every customer negotiation. It does, however, mean giving commercial teams a clearer understanding of what payment flexibility actually costs. A customer requesting 90-day terms instead of 30 days is effectively asking the supplier to provide an additional 60 days of financing.
For example, a sales team could compare two proposed contracts with identical revenue but different payment schedules. By incorporating the company’s cost of capital, finance could show how much additional margin would be required to compensate for extended terms. Rather than treating payment terms as a secondary concession, the commercial team can consider a range of economically equivalent offers: shorter terms at one price, longer terms at another, or financing arrangements that preserve flexibility without placing the entire burden on the supplier.
The “2025-2026 Growth Corporates Working Capital Index,” a Visa report in collaboration with PYMNTS Intelligence, found that 7 in 10 “Adaptive” chief financial officers and treasurers use working capital solutions to pay suppliers faster, stay agile and strengthen supplier relationships in a volatile economy.
The most significant opportunity may emerge when companies stop treating payment terms as a standardized policy and start managing them as a strategic financial variable.
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