What's the official accounting terminology for these payment terms?

[xjr13m]

I have a customer offering to pay our invoices in what they call "2 months plus 6". So if our invoice is dated the 1st of the month we get paid in 66 days, if our invoice is dated the last day of the month we get paid in 36 days.

Longer payment terms in our industry are quite normal so no problem with it. However, I've never come across these terms before and I'm curious if they have an 'official' terminology (like Net 60, or 60 EOM which are easily understood)?


Thanks

 

[Ian J]

I have a customer offering to pay our invoices in what they call "2 months plus 6". So if our invoice is dated the 1st of the month we get paid in 66 days, if our invoice is dated the last day of the month we get paid in 36 days.

Longer payment terms in our industry are quite normal so no problem with it. However, I've never come across these terms before and I'm curious if they have an 'official' terminology (like Net 60, or 60 EOM which are easily understood)?


Thanks

I'm not so sure that you are correct as they could possibly be adding a further month to what you think they are going to pay in

 

[Newchodge]

I have a customer offering to pay our invoices in what they call "2 months plus 6". So if our invoice is dated the 1st of the month we get paid in 66 days, if our invoice is dated the last day of the month we get paid in 36 days.

Longer payment terms in our industry are quite normal so no problem with it. However, I've never come across these terms before and I'm curious if they have an 'official' terminology (like Net 60, or 60 EOM which are easily understood)?


Thanks

Call me old fashioned, but I always thought the supplier set the terms.

 

[Ian J]

Call me old fashioned, but I always thought the supplier set the terms.

Not necessarily so as there are many major companies that will only operate on their payment terms on a take it or leave it basis including the major supermarkets.

Arnold Weinstock built up the largest manufacturing group in the UK in the late sixties and early seventies by paying his suppliers in 90 days and if you didn't like it you could buzz off as others would be happy to deal on those terms

 

[WaveJumper]

Ask the client what they mean

 

[pentel]

I'm not so sure that you are correct as they could possibly be adding a further month to what you think they are going to pay in

That is my reading of this too.

 

[xjr13m]

Call me old fashioned, but I always thought the supplier set the terms.

Well I'm (also?) of a certain age and back in the day customers in our industry would usually pay 30 days from invoice. But I've seen that get continually stretched out over the years, particularly with big household name companies. For example, one of our customers (a manufacturer of a very popular baked bean) pays 120 days EOM, so worst case we wait 150 days for payment!

 

[Mark T Jones]

Well I'm (also?) of a certain age and back in the day customers in our industry would usually pay 30 days from invoice. But I've seen that get continually stretched out over the years, particularly with big household name companies. For example, one of our customers (a manufacturer of a very popular baked bean) pays 120 days EOM, so worst case we wait 150 days for payment!

I'm not sure how old you are, but I clearly recall in the early '90s that the FSB published an annual 'hall of shame' of companies whose standard terms were >90 days. Unsurprisingly, the list was dominated by big retail and construction

I also recall, with double-digit interest rates that holding onto suppliers' cash was pretty much a sport in many business - he who shouted loudest got paid

 

[xjr13m]

I also recall, with double-digit interest rates that holding onto suppliers' cash was pretty much a sport in many business - he who shouted loudest got paid

Before starting my business I worked for the UK office of an American company and shared an office with the Financial Controller. A significant percentage of her performance related bonus was based on how long she could make suppliers wait for payment. I overheard some desperate calls from suppliers but they were always fobbed off with some excuse or another, or downright lies. I have no idea how she slept at night...

 

[Newchodge]

Before starting my business I worked for the UK office of an American company and shared an office with the Financial Controller. A significant percentage of her performance related bonus was based on how long she could make suppliers wait for payment. I overheard some desperate calls from suppliers but they were always fobbed off with some excuse or another, or downright lies. I have no idea how she slept at night...

Wasn't there a government plan to pass legislation to limit how long clients could take to pay an invoice? I wonder what happened to that?

 

[Ozzy]

I'm familiar with this terminology in leasing terms, and assuming it is on the same basis - and assuming each 'month' is £10 it'll look like this (in my understanding)

2 plus 6...

First payment on month one = £20
Then from month two and for another 5 additional months = £10

My understanding this will result in 7x actual payments in total spread over 7 months.

 

[Newchodge]

I'm familiar with this terminology in leasing terms, and assuming it is on the same basis - and assuming each 'month' is £10 it'll look like this (in my understanding)

2 plus 6...

First payment on month one = £20
Then from month two and for another 5 additional months = £10

My understanding this will result in 7x actual payments in total spread over 7 months.

That is very different from the OP's initial post!

 

[Ozzy]

That is very different from the OP's initial post!

I am ashamed and will crawl back under my rock

 

[AlanJ1]

Call me old fashioned, but I always thought the supplier set the terms.

They do and they don't. Everything is a negotiation really.

 

[Newchodge]

I am ashamed and will crawl back under my rock

Please don't, you don't know who else may be under there. And you may be right!