The problem: A distributor grants generous payment terms to large accounts without seeing the cash those accounts consume.
The solution: Put realized margin, actual payment days, and funding cost together for each account before changing terms or prices.
The math
Funding a $1.2 million receivable balance for 30 extra days at an illustrative 12% annual rate costs about $11,800 in financing.
The biggest customer orders steadily, receives a volume discount, and pays eventually. The sales report calls it the best account. The bank line tells a different story: stock is bought and delivered long before cash arrives, and the distributor funds the gap.
The question is not whether the customer is valuable. It is whether its price and terms leave enough after product, delivery, service, and financing.
Join margin to days outstanding
For each account, put sales and gross contribution beside invoice dates, actual payment dates, average receivable balance, and agreed terms. Separate a customer whose contract allows long terms from one that routinely pays late. Those situations require different conversations.
Use the distributor's real funding rate where borrowing is involved. If it carries the balance with its own cash, record that choice separately rather than claiming an interest bill it does not pay.
A look at a distributor
Consider a $12 million distributor with a major account whose receivable balance averages $1.2 million during a peak period. Suppose its cash arrives 30 days later than a shorter-term alternative, and the distributor funds that balance at an illustrative 12 percent annual rate. The extra 30 days cost about $11,800: $1.2 million times 12 percent times 30 divided by 365.
That one estimate does not settle the account's value. The account may produce ample margin and be worth those terms. But the owner should know the funding cost before renewing a discount or promising even more time.
Change the right lever
An account with good margin and predictable long terms may simply need planned working capital. One with thin margin and repeated late payment may need a different price, limit, or process. A customer whose invoices are frequently disputed may need cleaner proof of delivery before any terms discussion.
AI can group payment behavior and show margin after an estimated funding charge. Finance and sales should confirm the account record and contractual terms before acting on the result.
The four-step check, in your business
- Choose the largest balances. Start with accounts that use the most receivable capacity.
- Measure actual days. Compare invoice-to-payment time with agreed terms.
- Add funding cost. Use the business's actual rate and keep assumptions visible.
- Review account contribution. Decide whether to plan for the terms, improve billing, or discuss price and payment.
A customer can be large, loyal, and expensive to fund at the same time. The decision gets easier when all three facts sit on the same account record.