The Ripple Effect of Extending Payment Terms – Guidance from the 4As

While industry advocates have long been promoting 30 days as the standard for payment terms, clients often try to negotiate extended terms of 60, 90 or even 120 days. Pushing back on a client is never easy for an agency. However, when it comes to a matter as consequential as extended payment terms, not doing so could be catastrophic.

Extending billing terms could force agencies to take on additional financial burden in the form of loans or dipping into cash reserves to meet business expenses. The short-term and long-term ramifications of doing so may include a drop in the agency’s credit rating, crippling interest expense and further impact on cash flow, eventually diminishing the agency’s ability to meet clients’ demands and remain competitive.

Is the solution as simple as saying no to extending payment terms?

This guidance paper equips agencies to confidently navigate the difficult conversations around standard payment terms. Empowered with the context, consequences and possible solutions, agencies will be better prepared to protect themselves and their clients from the ripple effects of extended payment terms.