Payment Term Increase

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Pinkjo
Pinkjo Registered Posts: 88 Regular contributor ⭐
in General accounting discussion
I was hoping someone with a larger brain than mine could help me work out a forumla?

A client of ours who used to pay about £5000 per invoice weekly, has now insisted our payment terms will be 45 days per invoice. How can I work out how much that is going to cost us, and therefore how much extra to charge them.

Thanks!

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  • Bookworm55
    Bookworm55 Registered Posts: 479 Dedicated contributor 🦉
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    I'm not sure what your client wants:

    a. Invoices for 45 day periods rather than one-week periods
    b. To pay invoices within 45 days rather than within one week

    Or something else entirely?
  • Pinkjo
    Pinkjo Registered Posts: 88 Regular contributor ⭐
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    Sorry! Our payment terms are 14 days, they now want (or are paying 45 days terms). So there is an extra period of 31 days we will not have the money for.

    In short they want to pay invoices in 45 days, instead of the week they were paying them in.
  • Pinkjo
    Pinkjo Registered Posts: 88 Regular contributor ⭐
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    Don't worry - I've sorted it!

    The difference between their terms and ours is 31 days (ie 1 month) so 1/12th of 0.5% (BoE Rate) is 0.04166% x an average invoice of £5,000 = £2.08 -so probably not worth bothering about.

    Thanks

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