Postponed billing is a strategy sometimes employed by suppliers as a means of providing an extra service to an important customer. Sometimes called delayed billing, the vendor allows a customer to place an order without having to pay in advance. The supplier delivers the order and chooses to postpone the payment requirement to an agreed date in the future as well.
As part of the deferred billing process, the vendor often offers this extended billing delay for payment to the customer without earning any finance or interest in the meantime. The expectation is that the customer will pay for the goods correctly after the supplier issues an invoice for the order. In return for complying with the terms and conditions governing deferred billing scheme, the credit customer can look forward to receiving the same courtesy with future orders.
The very structure of a deferred billing process normally does protect the supplier in case the customer fails to live up to the terms and conditions governing the extension of delayed billing. Typically, if payment is not received within the terms outlined on the invoice, the vendor can start using the cost of the outstanding amount as long as it takes to fully pay for the purchase. In addition, the supplier may choose to forgo any extended postponed billing privileges to the customer. Should the balance remain unpaid for an extended period after the deferred invoice has been issued, the supplier may choose to close the customer account for any future purchases other than cash.
Deferred billing is not uncommon when formal contracts exist between a supplier and a customer. Customers who purchase large quantities of goods and services are often able to negotiate deferred billing terms that may defer billing of outstanding amounts for two or more monthly billing cycles. This approach allows the customer not to incur interest and also stand a reasonable chance of generating revenue from the purchased goods or services which in turn can be used to withdraw the debt. This is especially true when the purchased products are used to produce goods and services that are in turn sold by the customer to his or her clients. As payment is received from the customerâ & # x20AC; & # x2122; s customers, the revenue generated is used to pay the original supplier.
- Deferred billing is not uncommon when formal contracts exist between a supplier and a customer.