A sale is completed not when the invoice is issued, but when the money is collected. The time in between is the risk the business assumes.
Working with deferred payments is often a necessity rather than a choice in Turkey. The problem is not offering a payment term; it is offering it without measuring or setting limits.
In this article, we explained how to determine the risk limit, how to read aging receivables, and how to establish an early warning mechanism.
Table of Contents
Why are payment terms a risk?
Two types of costs are assumed in credit sales. The first is the financing cost: while waiting for the money, you still pay your own suppliers.
The second is the risk of non-collection. A customer's ability to pay might change three months from now, even if it looks good at the time of sale.
This risk increases in direct proportion to the payment term. In a thirty-day term, the customer's situation is largely predictable; in one hundred and eighty days, it is unpredictable.
The cost of an uncollected receivable is greater than the lost amount itself. The picture becomes clear when you calculate how many sales you need to make with the same profit margin to compensate for that sale.
Therefore, payment terms should not be a decision made solely by the sales team. The finance perspective must also be included in the process.
Setting a risk limit
A risk limit is the maximum deferred balance that can be extended to a customer. When this limit is exceeded, new shipments are stopped or shifted to cash terms.
The first criterion to look at when determining the limit is payment history. A customer who pays regularly and on time deserves a higher limit.
The second criterion is the duration of the relationship. Starting to work with a new customer with a low limit protects both you and the relationship.
The third criterion is that customer's share in your total receivables. Over-concentration on a single customer shakes the business if that customer fails to pay.
The limit must be defined in the system and checked at the time of the order. A limit that remains on paper is not enforced because no one looks at it. This check is performed via the current account card is established with the definitions on.
Accounts receivable aging schedule
Aging is a table that groups open receivables based on the time elapsed since their due date. It is the most practical tool to visualize collection risk.
Common groups are: not yet due, one to thirty days overdue, thirty-one to sixty days, sixty-one to ninety days, and more than ninety days.
Collectibility decreases as you move to the right. The probability of collecting a receivable that exceeds ninety days is significantly lower than a thirty-day one.
Comparing the table across periods is even more instructive. If the share of overdue receivables in the total is increasing, either customer quality has dropped or follow-up has weakened.
This table is also an input for cash forecasting; cash flow tracking we covered this connection in the article.
Early warning signals
Collection problems usually do not appear suddenly. They give a few signals beforehand; catching these saves time.
Change in payment behavior. If a customer who always pays on time starts paying late, attention is required.
Partial payments. Paying in pieces instead of the full amount is the classic sign of a cash crunch.
Increase in order frequency. Unusually increasing orders may indicate that the customer cannot get goods from other suppliers.
Not responding to reconciliation. A customer avoiding balance confirmation often has an issue regarding payment intent; reconciliation check the article.
Decrease in communication. A customer who returns calls late or does not accept visits is a signal that the field team will notice.
Collection follow-up process
Collection follow-up works irregularly when left to personal initiative. Defining a phased process both increases impact and preserves the relationship.
The first tier is the reminder: a polite notification before the due date. This step eliminates most delays caused by forgetfulness.
The second tier is post-due date follow-up. The first call made when a delay begins is much more effective than one made two weeks later.
The third tier is the involvement of the sales team. A call from the person who has a relationship with the customer yields different results than an accounting call.
The fourth tier is the formal process. Having all communication recorded before reaching this point makes subsequent steps easier; customer 360 view keeps this record.
Collateral and security methods
Taking collateral in high-amount credit sales is a common practice. Which method is appropriate depends on the relationship and the amount.
Cheques and promissory notes are the most common tools. They need to be monitored along with their due dates and the recording of any bounced situations.
More robust tools like letters of guarantee and mortgages come into play in large-amount and long-term relationships.
Credit insurance is also an option; it has a cost but should be evaluated in businesses with high customer concentration.
Whichever method is chosen, the tracking of collateral must be systematic. Collateral that has expired is non-existent collateral.
Writing a due date policy
A written policy is necessary to ensure that credit decisions do not vary from person to person. This policy should not exceed a few pages.
The policy should include standard maturity terms, variations by customer segment, and limit-setting criteria.
How exceptions are approved should also be written down. When a non-standard maturity request comes in, it should not remain unclear who will decide; authorization establishes this distinction.
It is important that the policy is shared with the sales team and its rationale is explained. A team that does not know the 'why' sees the policy as an obstacle and tries to bypass it.
Maturity and limit definitions are kept in the finance module and reflected on sales screens.
Frequently asked questions
Should shipments be stopped when the limit is exceeded?
Rather than an automatic stop, generating a warning and routing it to approval is a more flexible approach; there will be a person making the decision with information.
Should the field team see the balance?
Yes. A representative visiting a customer with a high balance needs to know this; field mobile usage check out the article.
Should a maturity difference be applied?
It can be applied; however, it must be reflected transparently in the pricing structure. Customer-based pricing we discussed the effect of payment terms on price in the article.
What is the easiest way to speed up collection?
Reducing payment friction; payment link you can check out the article.
Collection risk is the unseen face of sales. When managed well, working with maturity is a competitive advantage; when not managed, it puts even the fastest-growing business in a tight spot.
To begin, pull the aging report this week. The share of your receivables overdue by ninety days within the total shows your current situation at a single glance.
Then, define limits for the five customers with the highest balances. This small step brings the vast majority of the risk under control.
By talking to the EQLEM team you can plan your risk limit and collection tracking structure.