What payment terms do you impose on customers? Net 30? A 2% discount if they pay within 10 days (2/10 net 30)? Have you ever considered how illogical these terms are, and how there is no reasonable justification for any of them? Payment terms are simply based on historical precedent, or because those are the terms used by everyone else in the industry. Further, you have no idea if customers are really going to pay on a specific date, which gives rise to elaborate cash forecasting models.
Instead, what about setting up customized payment dates for every customer, on the condition that they allow the company to debit their bank account on the mutually agreed-upon date? Rather than setting up an inordinately expensive early payment discount percentage, just assume that any customer will need at least ten calendar days to receive and approve your invoice, and then impose a reasonable daily interest rate (based on your incremental cost of capital) for every additional day over the minimum that the customer wants to have the money taken from its account. Of course, this approach should not be taken to an extreme, with multi-month delays in payments, since your company is not in the business of being a bank. The intent is to offer a customized account debiting date within one operating cycle; so if your industry's cash-to-cash operating cycle is about 45 days, then the payment terms should fall within a 45-day time frame.
While it is likely that most customers will opt for a relatively early payment that avoids the interest charge, quite a significant number having less robust access to capital may opt for later payments to correspond with the arrival of their own cash receipts. In these cases, the opportunity to select a specific date may be a significant selling point for customers, and could even bring in additional business.
One objection to this approach is that, if less credit-worthy customers are the most likely to take advantage of it, then the risk of debiting an empty customer bank account is relatively high. This risk can be mitigated through the use of credit insurance, or simply by charging a higher interest rate to higher-risk customers.
From a practical perspective, how can completely variable payment terms be accomplished? Account debiting modules already contain a feature that allows one to specify the exact date on which a customer's account shall be debited. However, calculating an interest charge is not a standard feature, and will require a custom interface to a table that specifies the interest rate to be charged, the minimum number of days over which interest will be charged, and any risk multiplier to be applied to the interest rate for high risk customers. There should also be a procedure for periodically updating the interest rate and communicating this information to customers, as well as for determining the most appropriate risk multiplier (or range of multipliers) to be applied to higher-risk customers.