Receivables and payment terms

A logistics company wants 240 Teams lessons a month at 800 UAH, but asks to pay in 60 days instead of 30. "Same price, so it costs nothing" is the trap. While the invoice is unpaid, Klasna has already paid the tutors, so it is lending the client money.

An unpaid invoice is a receivable. To price extra days, ask what money costs Klasna. Its credit line charges 24% a year, and in summer Klasna would be borrowing.

Cost of extra days = invoice × annual rate × extra days ÷ 365.

Teams is invoiced quarterly: 240 × 3 × 800 = 576,000 UAH. Thirty extra days cost:

576,000 × 0.24 × 30 ÷ 365 = 11,362.19 UAH a quarter, almost 2% of the invoice, about 45,449 a year.

Two slips are common: charging the full annual rate (24% of the invoice) instead of the share for the extra days, and counting all 60 days when only 30 of them are new.

Once you know what the extra days cost, spread that cost over the lessons the invoice covers. That gives the price of patience per lesson.

The 576,000 UAH quarterly invoice covers 240 × 3 = 720 lessons, and 30 extra days cost 11,362.19 UAH:

11,362.19 ÷ 720 = 15.78 UAH per lesson.

The same comes straight from one lesson: 800 × 0.24 × 30 ÷ 365 = 15.78. So 60-day terms at about 816 UAH (815.78) leave Klasna as well off as 30-day terms at 800.

Now you can offer a choice instead of a favor: 800 UAH paying in 30 days, or about 816 paying in 60. The client picks what suits its own cash.

When the client says "nobody else charges for payment terms", the honest answer is that everybody does. Some just hide it in a higher base price. Showing the cost openly is fairer and easier to defend later.

Every request for longer terms can be priced with the same five steps.

1. Extra days. Compare with your standard terms. Going from 30 to 60 days adds 30 days, not 60.
2. What money costs you. If you would borrow, it is the credit line rate: 24% a year for Klasna. If you have spare cash, it is what that cash would earn.
3. Cost of the invoice. Invoice × rate × extra days ÷ 365: 576,000 × 0.24 × 30 ÷ 365 = 11,362.19 UAH a quarter.
4. Cost per lesson. Divide by the lessons in the invoice: 11,362.19 ÷ 720 = 15.78 UAH.
5. The offer. Present a choice: 800 UAH on 30 days or about 816 on 60. Optionally add an early-payment discount if it is cheaper than your borrowing.

Skipping step 1 or 2 is what makes deals look free. Skipping step 5 turns a sound calculation into a quiet favor that nobody on the client's side ever sees.

You can also turn terms around and pay the client to pay early. Offer 2% off if the 576,000 UAH invoice is paid within 10 days instead of 60. The discount costs Klasna 576,000 × 0.02 = 11,520 UAH, and the money arrives 50 days earlier.

Is 2% cheap or expensive? A percentage for 50 days can't be compared with a yearly rate until you convert it. You give up 2 for every 98 you receive, for 50 days:

annual cost = 2 ÷ 98 × 365 ÷ (60 − 10) = 0.0204 × 7.3 = 14.90% a year.

Klasna's credit line costs 24% a year. So when Klasna would otherwise borrow, getting paid early through the discount is the cheaper money.

The usual slips: dividing by 100 instead of 98 (the client pays 98, not 100), and comparing "2%" directly with "24%" without turning the 50 days into a year. Two percent sounds small, but over a short period it is an expensive rate.

An early-payment discount is a way of buying money: Klasna gives up 2% to have the cash 50 days sooner. Like any purchase, it is good or bad depending on the alternative.

First turn the discount into a yearly rate: 2 ÷ 98 × 365 ÷ 50 = 14.90%. Then compare it with what money costs Klasna at that moment:

• Klasna would borrow (summer, cash gap): the credit line costs 24%. The discount, at 14.9%, is cheaper money. Offer it.
• Klasna has spare cash earning 10% in a deposit: the discount costs more than the cash earns. Getting paid early just swaps 10% money for 14.9% money. Don't offer it, or make it smaller.

The same discount can be smart in July and wasteful in October. That's why the rate in the formula is never fixed: it is the cost of the money you would otherwise use. The slip to avoid is "early cash is always better": it is better only when it is cheaper than your alternative.

Payment terms are a promise, not a fact. Some companies pay on day 75 or 80, and nobody notices until the bank is empty. You see it in DSO (days sales outstanding):

DSO = receivables ÷ the year's sales on credit × 365.

It says how many days of sales are still waiting to be paid. In a year when Teams sells 3,840,000 UAH and 1,180,000 is unpaid at the end:

1,180,000 ÷ 3,840,000 × 365 = 112.16 days.

The number means little alone; compare it with what the terms promise. With quarterly invoices, a lesson waits on average 45 days until the invoice, then 60 days of terms: about 105 days expected. An extra week says some clients pay late, so the next step is to look at who, and to make sure someone owns chasing invoices.

The usual slip is to divide by total revenue, including prepaid packages. DSO uses only sales made on credit, otherwise families' prepayments hide the late payers.

A measured DSO is useful only next to a benchmark: the DSO you would get if every client paid exactly on time. You can build it from the calendar.

Expected DSO = average days from the lesson to the invoice + payment terms.

Teams lessons are spread evenly over a quarter and invoiced on its last day. A lesson on day 1 waits 89 days for the invoice, one on day 90 waits none, so on average a lesson waits about 45 days. Then the terms start:

• 30-day terms: 45 + 30 = 75 days;
• 60-day terms: 45 + 60 = 105 days.

If Klasna measured 112 days with 60-day terms, about a week of sales is late beyond the contract. That is the gap worth chasing.

The benchmark also shows a second lever. Invoicing monthly instead of quarterly cuts the first part from about 45 days to about 15, which shortens DSO by a month without asking clients for anything. The slip is to compare DSO with the terms alone ("60 days promised, 112 measured"), which makes every client look badly late.

A client who pays exactly on day 60 is a reliable client. Reliability and cost are different questions, though.

Look at the formula again: cost = invoice × rate × extra days ÷ 365. The extra days are in the contract, not in the client's behavior. Even when the money arrives on the promised day, Klasna funds the lessons for two months while it pays the tutors every two weeks. At 24% a year, 30 extra days on a 576,000 UAH invoice cost 11,362.19 UAH a quarter.

Late payment is a second cost on top of the first:

• the terms themselves cost money for every day they add;
• each day of delay adds the same cost again, plus the risk that the money never comes.

So judge a deal by both: what the agreed terms cost (price them or offer a choice), and how the client actually pays (watch DSO and chase invoices). A client can be perfectly reliable and still expensive to serve.