This is the maximum due date extension allowed under a policy when granting a credit term longer than originally agreed.

It’s necessary to understand the buyer’s specific needs when defining appropriate credit terms. We examine the country where the sale is made to identify risk and payment habit and trends; the riskier the country, the shorter the extension should be. However, we can also consider the buyer’s circumstances and credit history.

Imagine I sell toys to various retail stores in France, Germany and Spain, delivering on a monthly basis. I raise an invoice at the end of each month – my invoicing period is 30 days.

To comply with country legislation, my invoice must have 60-day payment terms for buyers in France. But for Spanish and German buyers, I decide to deliver at higher volumes to save on shipping costs and therefore raise an invoice on 90-day terms of payment.

When it comes to dummy extending payment terms, I am aware that my Spanish buyer – while they always pay – frequently pays late. As a result, I need a maximum extension period of 90 days. If this invoice is not paid within 180 days (90 days + 90 days), I will discontinue delivery to this buyer because we have reached a state of default. If I ship new goods at this stage, I assume the risk of non-payment at my own expense.