Customer Contract Payment Terms and Cash Flow Management

Definition

Industrial machinery projects often span 6-18 months from order to delivery. Customers typically structure payments: 10-30% upon order placement, 30-50% upon completion/delivery, remainder upon installation/acceptance (30-60 days later). This creates significant working capital strain for manufacturers: (1) materials and labor costs are front-loaded (months 1-3), but payment is back-loaded (months 6-18), (2) large projects can consume $500K-$5M of working capital, (3) customer payment delays or disputes (quality issues, scope disputes) can extend cash flow by months, (4) customer bankruptcy/business failure results in partial/total loss, (5) operations leaders must manage cash flow gaps through credit lines (expensive, risky) or restrict growth. Some manufacturers report 90-120 day payment delays beyond contract terms. Bad debt is endemic—some companies write off 1-3% of revenue annually. For smaller integrators, a single customer payment delay or default can threaten operations.

Why This Matters

Invoice financing/factoring, supply chain financing platform, payment term negotiation consulting, credit insurance, customer credit assessment tool

Affected Stakeholders

Owner/VP Operations (Integrator/System Builder), Project Manager/Engineering Lead

Related Business Risks