Should we accept 90-day payment terms from a big customer?

The procurement call goes well. The customer is a large company whose name would sit nicely on your website, the contract is worth ₹1.8 crore a year, and the business team wants to start next month. Then procurement mentions, almost in passing, that payment terms are 90 days from invoice acceptance. It's standard, they say. All vendors are on it.

Most founders say yes. The contract is too important to lose over payment terms, and 90 days doesn't sound so different from 45. It's only a few months later, when payroll comes round and the customer's first payment still hasn't arrived, that the real cost becomes clear.

Saying yes can be the right decision. It just needs to be made with the numbers in front of you, and ideally before the business team has told the customer's business team that it's all agreed, because that's when a supplier's negotiating position quietly disappears.

What 90 days really means

Ninety days from invoice acceptance is not ninety days from when you start the work. In most large Indian companies, several things happen before the clock starts.

• ·Vendor onboarding: registration forms, bank verification, MSME status, sometimes weeks before a purchase order can be raised.
• ·The purchase order itself, which the invoice has to reference exactly.
• ·Delivery or a month of service, after which you raise the invoice, often at month end.
• ·Invoice acceptance, which may require a goods receipt or a service confirmation from the business team in the customer's system. Invoices that don't match the purchase order are sent back and the clock restarts.
• ·The payment run, which in many companies happens on fixed days, so a payment due on the 3rd may actually go out on the 15th.

Add those up and money for work started in April often arrives in August or September. For planning purposes, it's safer to assume four to five months between starting the work and receiving the first payment, and then a permanent lag of roughly that length for as long as the contract runs.

What it does to your cash, worked through

Here's an illustrative example with invented figures. The ₹1.8 crore contract is billed monthly in arrears at ₹15 lakh a month plus GST. Delivering it costs about ₹9 lakh a month, mostly salaries, paid in the month. The customer deducts 10% TDS on the fee. Assume four and a half months from starting work to the first receipt.

Before a single rupee arrives, the company has paid about four and a half months of delivery cost, roughly ₹40 lakh. It has also paid GST on every invoice it has raised, because GST on a service is generally due when the invoice is issued, not when the customer pays. At 18% on ₹15 lakh, that's ₹2.7 lakh a month, so another ₹10 lakh or so has gone to the government by the time the first payment lands.

So at its peak, this one contract ties up around ₹50 lakh of the company's cash. And that doesn't unwind after the first payment. As long as the contract runs on the same terms, there will always be about four months of work delivered and not yet paid for.

When the payments do come, they arrive net of TDS: ₹15 lakh plus ₹2.7 lakh GST, less ₹1.5 lakh TDS, so about ₹16.2 lakh. The TDS isn't lost, but it only helps once it's reconciled and set against your own tax.

Now put that against the company's position. Say it has ₹1.5 crore in the bank and burns ₹10 lakh a month: fifteen months of runway. Taking the contract adds contribution of about ₹6 lakh a month once it's flowing, which is genuinely good for the business. But locking up ₹50 lakh means runway at the low point is closer to ten or eleven months. If the company planned to start fundraising at twelve months of runway, that point has just arrived.

The MSME rules can change the conversation

If your company is registered under Udyam as a micro or small enterprise, the law is on your side here. Under the MSMED Act, a buyer has to pay a micro or small supplier within the agreed period, which can't exceed 45 days, or within 15 days where there's no written agreement. Late payment carries compound interest at three times the bank rate notified by the RBI.

There's a tax consequence for the buyer as well. The income tax rule that denies buyers a deduction for amounts owed to micro and small enterprises beyond those limits until they're actually paid, previously section 43B(h), carries into section 37 of the Income Tax Act 2025 from the 2026-27 financial year. Large companies' finance teams know about it, which is why so many now ask for MSME status at onboarding.

That gives a registered micro or small supplier a legitimate basis to ask for terms within 45 days. Three cautions. Medium enterprises aren't covered. Traders have been treated differently from manufacturers and service providers. And some buyers, faced with the rule, prefer suppliers who aren't registered, so it's a lever to use carefully rather than a weapon. Check your registration and category with your CA before relying on it.

What to negotiate instead of simply accepting

Procurement teams often present payment terms as fixed. In practice, many large companies have more flexibility than their standard contract suggests, particularly for smaller strategic vendors. The trick is to negotiate the elements that move cash the most, not just the headline number of days.

• ·An advance or mobilisation payment at the start, which covers the first months of delivery cost.
• ·Milestone billing for project work, so invoices go out as work is completed rather than monthly in arrears.
• ·Starting the clock at invoice submission rather than acceptance, with a fixed number of days for the customer to raise disputes.
• ·Onboarding and purchase orders completed before work begins, written into the start date.
• ·Shorter terms for the first few months while the relationship is new, moving to longer terms later.
• ·An early payment discount, priced honestly, if the customer's treasury team values it.
• ·A higher price that reflects the cost of the terms, if the terms themselves won't move.

It helps to explain your position plainly. A procurement manager has little reason to change terms because a vendor would prefer it. They have more reason to when a vendor shows that 90-day terms would force them to slow down delivery, or that an advance would let them staff the project fully from day one.

Pricing in the wait

If the terms can't move, the price should reflect them. Money tied up in receivables has a cost, whether it's funded from equity, from the founder's pocket or from runway you'd otherwise spend on growth.

A simple way to think about it: if you assume that cash costs your business the equivalent of, say, 18% a year, then waiting an extra 60 days compared with your normal terms costs about 3% of the invoice value. On a ₹1.8 crore contract, that's around ₹5.4 lakh a year. You may not be able to add all of that to the price, but you should know it's there, and it's a fair basis for resisting a discount request on top of long terms.

The assumed rate is a judgement, not a market figure, and for an early-stage company funded by equity the real cost of cash is often much higher than any interest rate, because runway is what buys time to reach the next round.

When saying yes is the right call

• ·The contribution margin is strong enough that the contract clearly improves the business once cash is flowing.
• ·The company can fund the working capital and stay comfortably above its minimum cash line at the worst point.
• ·The customer has a reliable record of actually paying on its terms, which you can check with its other vendors.
• ·The logo or the reference will genuinely help win other customers on better terms.
• ·The contract won't make one customer an uncomfortably large share of revenue.

When it's worth walking away

• ·Runway is already short, and the working capital would push the company into a fundraise from a weak position.
• ·Margins are thin, so the contract adds risk without adding much profit.
• ·The customer's other vendors describe payments well beyond the stated terms.
• ·The contract would become a third or more of revenue, making the company dependent on a customer who pays last.
• ·The customer also wants a discount, penalties and unlimited scope on top of the terms.

Walking away from a big name is painful. But a contract that drains cash for a year and then renegotiates on price can do more damage than never signing it.

Find out how the customer really pays

The terms in the contract and the customer's actual behaviour are often different, in both directions. Some large companies pay reliably on day 90. Others treat 90 days as the earliest they'll consider paying.

It's worth asking before signing. Other vendors who supply the same customer will usually tell you how long payments really take, and what causes delays: invoice formats, missing purchase order references, approvals stuck with a business team. Your own sales contact can often find out which internal step is slowest. And if the customer runs a supplier portal, ask to see how invoices move through it before you depend on it for payroll.

Whatever you learn, use it in the model. If other vendors say payments take 110 days, plan on 110.

Once it's signed, manage it like cash

A contract on long terms needs more attention after signing, not less. Assign one person to own the relationship with the customer's accounts payable team. Raise invoices the day they're allowed, exactly matching the purchase order. Check acceptance status in the customer's system every week rather than waiting for the due date. Reconcile TDS deducted against what the customer reports.

And watch the contract's share of receivables in the monthly MIS. If it starts to grow faster than its share of revenue, payments are slipping, and the time to raise it is at the next review, not when the balance has doubled.

Before you reply to procurement

Work out the realistic months from starting work to receiving cash. Multiply monthly delivery cost plus GST by that number. Check what that does to runway at the lowest point, not on average. Check your MSME status. Then go back with a specific proposal, an advance, milestone billing or a clock that starts on submission, rather than a general request for better terms. Even if the customer only moves on one of those points, it can change the cash picture completely.

Who wrote this

Shafneed is the founder of Simplify, a finance clarity and investment readiness practice working with founders across India. He writes about the questions founders bring before a decision, not after it.