Extending payment terms, for example from 30 to 90 days, is one of the quickest ways a large buyer can improve its working capital. Several large companies have done it publicly. Unilever, for instance, moved to 90 day terms for larger suppliers, and later conceded it had breached the UK Prompt Payment Code as a result.
The cash does not appear from nowhere. Longer terms move financing cost and risk onto suppliers, and the effects can come back to the buyer as higher prices, weaker service or supplier failure. This guide, refreshed for 2026, looks at what extended payment terms are, who bears the cost, and how to manage payment terms in a way that keeps the supply chain healthy.
What are extended payment terms?
Payment terms set how long a buyer has to pay an invoice. Common terms are net 30, net 45 and net 90, meaning payment is due 30, 45 or 90 days after the invoice date. Extended payment terms are terms longer than the norm for an industry, sometimes 120 days or more. Large buyers use them to hold cash longer, reducing the working capital they need.
Payment terms are written into the contract. See contract payment terms for how to set and manage them.
Who pays when terms get longer?
Suppliers, especially smaller ones, carry the cost first. Late payment is already a chronic problem for them, and the pandemic made cash flow tighter still for many suppliers. Atradius research put average payment duration in the United States at 61 days in 2020.
When a supplier waits longer for cash, it has to fund its own payroll, materials and operations from somewhere. The usual options all cost money:
- Borrowing: overdrafts or credit lines, with interest.
- Invoice factoring: selling invoices to a third party at a discount in exchange for quicker cash.
- Supply chain finance: buyer sponsored programs that let suppliers be paid early by a finance provider, for a fee.
- Charging interest: in some countries, such as the United Kingdom, late payment legislation lets suppliers charge interest and a fixed recovery cost on overdue commercial invoices.
How does the cost come back to the buyer?
Suppliers rarely absorb financing costs indefinitely. Over time, extended terms show up as:
- Higher prices or fewer discounts at the next negotiation
- Lower priority when capacity is tight
- Less investment in quality, innovation or service
- Supplier financial distress, and in the worst case, failure mid contract
A buyer that improves its cash position by weakening its critical suppliers has moved risk, not removed it.
Is long but reliable better than short but late?
Often, yes. Suppliers can plan around a known 60 day term. What hurts them most is unpredictability: invoices lost in approval, disputes left unresolved and payments that arrive weeks after the due date. Many buyers that negotiate long terms also pay late, compounding the damage.
Paying exactly on the agreed date is a competitive advantage with suppliers. It depends on getting invoices approved quickly, which is an accounts payable process question as much as a treasury one.
How should you manage cash outflows responsibly?
- Track liabilities accurately: know what is owed and when, so cash planning is reliable.
- Pay on the due date, not before or after: holding cash to the due date is reasonable; paying late is not.
- Use early payment discounts: where a supplier offers a discount for early payment, compare it with your cost of capital. Dynamic discounting lets you choose case by case.
- Segment suppliers: consider shorter terms for small or critical suppliers whose health matters to you.
- Avoid relying on float: using the gap between issuing a payment and its clearing is a fragile way to manage cash.
- Agree terms in the contract and honor them: a change to terms should be negotiated, not imposed.
How does invoice automation help?
Most late payments are not a decision. They are an invoice stuck in someone’s inbox or a mismatch nobody resolved. Automating intake and approval means invoices reach the right approver at once and are ready to pay on the due date, or early when a discount makes sense.
In Invoiceflow, Aavenir AI extracts invoice data on arrival, matches it to the purchase order, receipt and contract terms, and routes it for approval. Accounts payable and suppliers can see invoice status, so suppliers stop chasing and finance can plan cash precisely. A person approves every exception.
The bottom line
Extending supplier payment terms helps the buyer’s cash flow, but the cost lands on suppliers and often returns as higher prices or weaker service. Agree fair terms in the contract, pay exactly when due, and use automation so invoices are never late because of your own process.