The order is won. The price is acceptable, the margin meets the target, and the team has the capacity to deliver. It is the largest order in the company’s history. Then purchasing asks for a supplier deposit, payroll falls due before dispatch, and the customer will pay only after delivery and acceptance. Customer payment terms now matter as much as the price.
Before celebrating, one more question needs an answer: who is financing the work between now and the customer’s payment? If the answer is the business, that commitment belongs in the deal review, not in a cash flow emergency several weeks later.
Review Customer Payment Terms as Carefully as Price
In an article on fast-growth cash flow mistakes, Bruce Eckfeldt recommends improving pricing, payment schedules, and delivery turnaround to reduce the cash demands of growth. The CFO test is more specific: before accepting a material order, show its cash requirements on a calendar.
That means more than the invoice value or the expected margin. It means when suppliers need paying, when labor is required, when the customer can be invoiced, and when the money is realistically expected to arrive. “Net 30” is incomplete information. Ask what starts the clock: shipment, receipt, inspection, formal acceptance, or approval of a correctly submitted invoice.
A payment term is only useful in the forecast when the operational steps behind it are understood. Assign someone to those steps rather than assuming they will take care of themselves.
What a Deposit Changes, and What It Does Not
Consider this order, which a real client faced recently. The selling price is $3,000,000. Expected direct costs are $2,100,000, leaving a planned gross profit of $900,000 before overhead, financing costs, and tax. Assume $1,200,000 must be paid before the first scheduled customer receipt, and the remaining $900,000 of direct costs fall due after that receipt.
With no deposit, the business must provide $1,200,000 before the first customer payment. With a 20 percent deposit, the customer pays $600,000 before those costs are incurred, reducing the initial funding requirement to $600,000.
Under these assumptions, the deposit does not change the selling price or direct costs. It changes the amount the business must fund before the next receipt. It is also not an extra $600,000 of profit. It is part of the agreed $3,000,000 price, received sooner, with work still to deliver. This is an order-level illustration, not a complete company forecast. Existing payroll, overhead, taxes, debt payments, other jobs, and any restrictions or refund obligations attached to the deposit still need consideration.
Negotiate the Shape of Customer Payment Terms
A deposit does not have to be the only acceptable answer. Sales and operations should bring back workable alternatives. Could the customer pay at agreed production milestones? Could deliveries be split into smaller batches, each with its own billing point? Could supplier payment dates be aligned with customer receipts through negotiated terms?
For custom work, consider whether a payment should precede the point at which materials become customer-specific. For services, consider whether mobilization and completed phases can be billed separately rather than leaving everything until final completion. Milestones need to be clear and easy to administer. An attractive billing schedule is of little use if nobody can establish that a milestone has been met or submit the required documentation.
The customer may refuse. That does not automatically make the order unacceptable, but it makes the funding requirement explicit: approve the financing, revisit the price, change the delivery plan, or decline the terms.
Four Questions Before Signing
Peak cash requirement: what is the largest cumulative gap between payments out and receipts in? Payment trigger: what event allows invoicing, and who is responsible for the evidence and approval? Delay exposure: what happens if acceptance or payment takes another 30 days? Funding capacity: can the business finance that gap without compromising existing commitments and its minimum cash reserve?
A Process Improvement for the Next Three Quotes
For the next three material quotations, add a one-page cash schedule to the pricing review. Have sales, operations, and finance agree on it before the customer receives the final offer. Treat it as a test for a future standard operating procedure.
A healthy margin is a reason to investigate an order, not permission to ignore its payment terms. Accept the business with a deliberate funding plan, rather than discovering after signing that the company has also agreed to be the customer’s bank.
Book a call with Business CFO for Hire to review the cash requirements of your next large order before you accept it.
