Most B2B finance leaders track days sales outstanding and bad debt write-offs, but few calculate what it costs to become their customer’s lender. Every dollar in receivables represents not just delayed cash, but compounding expenses across four areas: capital you can’t deploy elsewhere, credit risk without a bank’s infrastructure, the team chasing payments, and the growth you miss while waiting 30, 60, or 90 days to collect.
According to Hackett Group’s working capital research, businesses that optimize cash conversion cycles outperform peers in profitability and growth. The burden of self-financing customer purchases can consume 8–15% of gross margin depending on industry and process maturity—yet modern net terms management platforms eliminate these costs while preserving the customer relationships that drove you to offer terms.
Offering net terms is fundamentally a financing decision that transforms suppliers into lenders, with all the associated costs and risks that banks would charge for. Research on trade credit economics shows that when businesses fail to account for the comprehensive cost of self-financing customer purchases, they dramatically underestimate the true expense of their credit policies.
The net-terms tax consists of four major cost components that compound to consume 8-15% of gross margin:
Trade credit represents one of the most important sources of short-term financing for B2B buyers, yet many suppliers underestimate the implicit costs they bear as informal lenders to their customer base.
Days Sales Outstanding (DSO) measures the average number of days it takes to collect payment after a sale. The standard formula is: DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of Days.
For example, a company with $1.5 million in accounts receivable and $10 million in annual credit sales has a DSO of 54.8 days [(1.5M ÷ 10M) × 365]. This means $1.5 million is perpetually locked in receivables—capital that cannot be used for operations or growth.
The impact is staggering when viewed through a working capital lens:
This working capital constraint directly impacts your ability to invest in growth. The B2B payments platform addresses this by advancing up to 100% on approved invoices, reducing seller time-to-cash to under 24 hours (effective DSO for the seller) and unlocking working capital immediately.
The risk component of the net-terms tax is often the most visible but still underestimated. Bad debt represents direct profit loss that must be absorbed by remaining sales.
Key risk metrics reveal the true cost:
These costs compound quickly. For a $10 million business with 2% bad debt, that's $200,000 in direct profit loss annually—before accounting for collection costs, staff time, and customer relationship damage from aggressive collections.
Resolve's B2B Net Terms eliminates this risk exposure by underwriting customers in real time using proprietary AI models and assuming the majority risk of late payments or defaults, subject to standard exceptions for fraud or disputes per agreement terms.
The administrative burden of managing credit and collections is frequently the most underestimated cost component. Finance teams track AR balances but rarely calculate the fully-loaded cost of the personnel and systems required to manage them.
Labor cost breakdown reveals significant hidden expenses:
For a $20 million company, AR management overhead can translate to hundreds of thousands in annual costs just to manage the credit function—a cost that scales linearly with revenue growth.
Resolve's accounts receivable automation eliminates this overhead by automating credit, invoicing, reconciliation, and collections with AI agents, enabling finance leaders to scale operations without adding headcount while reducing manual errors and processing time.
The most insidious component of the net-terms tax is opportunity cost—the profit potential lost when capital is tied up in receivables rather than invested in higher-return activities.
The calculation is straightforward but impactful:
Consider a manufacturer with $2 million in receivables and 10% cost of capital. The annual opportunity cost is $200,000—enough to fund significant growth initiatives or eliminate expensive debt.
Net Terms Management eliminates this opportunity cost by advancing up to 100% on invoices from approved customers, freeing capital for immediate reinvestment while customers maintain their preferred payment terms.
To quantify your specific net-terms tax, conduct a comprehensive cost audit using this four-step framework:
Step 1: Calculate Capital Cost
Step 2: Quantify Credit Risk
Step 3: Load Labor and Systems
Step 4: Calculate Total Impact
This framework provides a clear baseline for evaluating alternative solutions and understanding your true cost of extending credit.
Not all solutions address the complete net-terms tax. Understanding the difference between automation and true embedded credit is crucial for making the right investment decision.
AR Automation Software (addresses labor costs only):
Embedded Credit Platforms (addresses all four cost components):
Resolve's integrations with financial tech stack enable seamless connection to QuickBooks, NetSuite, Sage Intacct, and major ecommerce platforms via flexible APIs, automating credit, invoicing, and reconciliation without replacing your existing systems. The B2B payments platform combines previously disparate resources—credit expertise, invoice financing, and payment acceptance—into a single embedded platform.
Accelerating collections doesn't require sacrificing customer relationships or competitive positioning. Modern approaches balance speed with flexibility:
Net terms for ecommerce enables this balance through a white-label payment portal that accepts multiple payment methods while automating reminders and collections—preserving relationships and reducing DSO without compromising customer experience.
Traditional factoring often harms customer relationships and adds layers of cost and complexity. Modern embedded credit platforms, such as embedded advance pay, offer a cleaner, faster, and more transparent alternative.
Here’s how they differ:
Resolve's modern alternative to factoring offers non-recourse financing with competitive flat fees, up to 100% advance for approved customers, no hidden fees, and a white-label experience that preserves customer relationships.
Note: These are illustrative examples based on typical cost structures; actual results vary by business.
DSO (Days Sales Outstanding) = (Accounts Receivable ÷ Total Credit Sales) × Number of Days. Higher DSO means more capital is tied up in receivables rather than available for operations. Median DSO ranges from the low-to-mid 40s across U.S. companies, per Hackett Group research, representing significant working capital constraints that limit growth.
Bad debt expense varies widely by industry and economic cycle—ranging from under 1% for top performers to 3%+ in riskier sectors, according to APQC benchmarks. Collectability drops sharply over time: approximately 69.6% after 90 days, 52.1% after six months, and only 22.8% after one year, making proactive credit risk management essential.
Traditional factoring often involves recourse obligations (you bear the risk if customers don't pay), notification requirements that damage relationships, and hidden fees. Non-recourse advance pay provides immediate payment with the platform assuming credit risk (subject to standard fraud/dispute exceptions), maintains white-label customer relationships, and charges transparent fees. Learn more about better alternatives to factoring.
Yes, modern platforms integrate directly into ERPs and accounting systems through APIs. According to Finextra financial integration research, API-first platforms enable automatic syncing of customer data, real-time transaction recording, and seamless reconciliation. Resolve offers plug-and-play integrations with QuickBooks, NetSuite, Sage Intacct, and major ecommerce platforms without replacing existing systems.
This post is to be used for informational purposes only and does not constitute formal legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Resolve assumes no liability for actions taken in reliance upon the information contained herein.