Due date

What it means

The due date is the day by which payment must be credited. It is set in the contract or on the invoice and normally runs from delivery or from receipt of the document, depending on what was agreed.

Commercial relationships have statutory limits: a term markedly longer than the usual standard can be unenforceable. Late payment creates a right to interest and to a flat-rate recovery cost.

For VAT the due date usually makes no difference: the tax liability arises on supply, not on payment. A supplier granting long terms therefore pays the VAT to the state before it has received any money from the customer and funds it itself, unless it uses the special scheme that accounts for VAT on receipt of payment.

How it works in practice

Payment terms are the cheapest cash flow lever there is: moving from 30 to 14 days frees cash without a euro of borrowing. Invoicing on the day of delivery rather than at month end has the same effect.

Differentiating by risk works well: a new customer pays in advance, a checked one gets standard terms, a long-standing partner gets longer. All of it shows up in working capital.

As part of monthly processing we send clients an overview from the open items ledger of overdue receivables, broken down by days late. It is the basis for deciding who gets a reminder, whose deliveries to stop and which receivables need a bad debt allowance considered at year end.

What to watch out for

Long terms are a hidden loan you grant for free, and with large customers they are often a condition of doing business - so price them in. And the first time payment is late, the reminder should go immediately: waiting three weeks turns an ordinary receivable into a problem one.

The due date also starts the limitation period. A receivable that a company only keeps chasing for years, without the debtor acknowledging the debt or a lawsuit being filed, becomes time-barred and the debtor no longer has to pay; writing it off may not even be tax deductible.