The big contract with 90-day payment terms, and what it really costs to say yes

It arrives as good news. A company several sizes larger than yours wants to buy what you make, at a volume that would change the year. Then the procurement portal sends the supplier terms, and somewhere on page four sits the sentence: payment 90 days from end of month of invoice.

That sentence is not administrative detail. It is the price, restated. And it is worth working out precisely before anyone signs, because a contract that is profitable on paper and unfunded in practice is the most common way a growing small business runs out of money.

The working capital maths

Take an illustrative contract worth £120,000 a year — £10,000 a month of steady delivery. On 90 days from end of month, work delivered in January is invoiced on the 31st and paid at the end of April. From the moment you are up and running, roughly £30,000 of your money is permanently inside their business.

That is not the whole gap either. You pay for materials and wages while you deliver, typically a month before you invoice. So the true funding requirement on first delivery is closer to four months of cost, and if your cost of delivery is 75% of price, that is around £30,000 of cash out before the first £10,000 comes back.

The number to hold onto is this: a £120,000 contract on those terms is a £30,000 investment decision. Nobody would spend £30,000 on a machine without a conversation. This gets signed because it arrives dressed as revenue.

What funding that gap costs

You will fund it one of three ways: your own cash, an overdraft or loan, or invoice finance. Each has a price, and the price should come out of the margin on that contract before you decide it is a good one.

Suppose the gross margin is 25%, so £30,000 of gross profit a year. If funding the £30,000 gap costs 8% annually, that is £2,400 — eight percent of the profit on the contract, gone on financing it. That may well still be worth doing. What is not defensible is not knowing, or discovering it in month five when the overdraft is at its limit.

Invoice finance genuinely fits this shape of problem, and the old stigma around it is misplaced — the honest version of why invoice finance still gets a bad name is that it is priced per invoice and easy to misread, not that it is disreputable. Cost it on total charges as a percentage of the amount advanced, not on the headline discount rate.

A large customer on 90-day terms is not a customer. For the first quarter, they are a borrower, and you are the lender who never agreed to be one.

The law you are allowed to use

Under the Late Payment of Commercial Debts (Interest) Act 1998, statutory interest on a late commercial payment is 8% above the Bank of England base rate. With the base rate held at 3.75% at the Monetary Policy Committee's meeting on 30 July 2026, that is 11.75%. You can also claim fixed compensation per invoice — £40 for debts under £1,000, £70 for debts between £1,000 and £9,999.99, and £100 for £10,000 or more — plus reasonable recovery costs. These rights apply automatically; you do not need a clause in the contract for them to exist.

Note the crucial distinction. This applies to payments that are late against the agreed terms. It does nothing about terms that are long but honoured. Ninety days paid on day 90 is not late payment; it is a deal you accepted. The Act is a remedy for breach, not a cure for a bad negotiation.

Do use the public record before you sign, though. Large UK companies must report their payment practices and performance twice a year, including average time to pay and the proportion of invoices paid beyond terms. Those reports are published and searchable. A company whose stated terms are 90 days and whose reported average is 108 has told you exactly what to expect, and you can price it in.

What to negotiate instead of the terms

Procurement will often say the payment terms are fixed policy. Frequently true. Almost everything around them is not.

Ask for a mobilisation or set-up payment covering the first month's materials. Ask to invoice monthly in arrears rather than on completion of a phase, which alone can pull weeks out of the cycle. Ask for milestone billing on longer pieces of work. Ask whether they operate a supply chain finance facility, where their bank pays you early against their credit rating — often the cheapest money a small supplier can access, precisely because it is priced on their risk rather than yours.

Or price the terms in. Quote your standard price for 30 days and a higher one for 90, and be transparent that the difference is the cost of funding. If you would rather offer a settlement discount, know what you are giving away: 1% off for payment 60 days earlier is roughly 6% annualised, which is a reasonable trade against most facilities and a poor one against cash you already hold.

Get the administrative details right too, because they are where the extra weeks hide. Purchase order number, correct entity, correct portal, named approver. An invoice rejected on a technicality on day 88 restarts the clock, and no amount of polite chasing recovers a month you lost to a missing PO.

When to walk

Three tests. If funding the gap needs borrowing you cannot get, the contract is not available to you, however much you want it. If the contract would take one customer above roughly a quarter of your revenue, the terms compound a concentration risk that a single late payment can turn into an existential one. And if the margin after funding costs is thinner than the work you would have to turn away to deliver it, you have found an expensive way to be busy — the same trap as a record year that leaves you with less money.

Saying no to the logo is allowed. So is saying yes with your eyes open, having priced the terms, arranged the facility before you need it, and written the payment schedule into the contract rather than hoping.

Common questions

Can I charge interest on a late invoice without a clause in the contract?

Yes. The Late Payment of Commercial Debts (Interest) Act 1998 gives business-to-business suppliers an automatic statutory right to interest at 8% above the Bank of England base rate — 11.75% with the base rate at 3.75% — plus fixed compensation of £40, £70 or £100 per invoice depending on the debt size, and reasonable recovery costs. No clause is required, and a contract term that removes the right is only enforceable if it provides a substantial remedy in its place. Interest runs from the day after payment was due. Many suppliers state the right on their invoices without ever enforcing it, which is a fair tactic.

Is invoice finance worth it for one large customer?

It can be, because selective invoice finance lets you fund specific invoices rather than assigning your whole sales ledger. Pricing on a large, creditworthy debtor is usually keener, since the facility is underwritten against their ability to pay rather than yours. Compare offers on the total cost of the advance — service fee plus discount charge plus any minimum-usage fee — expressed as a percentage of the money you actually receive, and check whether the facility is disclosed to the customer and whether it carries recourse if they do not pay. Then set that total against the gross profit on the contract before deciding.

Is it reasonable to ask a large company for a deposit?

It is reasonable to ask, and more common than small suppliers expect, particularly where you have to buy materials or subcontract labour to fulfil the order. Frame it as project mobilisation rather than as a deposit, tie it to a defined deliverable, and offer it as an alternative to the shorter payment terms you have just been refused. If a deposit is genuinely impossible, the fallback positions in order are: monthly invoicing rather than on completion, milestone payments tied to stages, and access to their supply chain finance facility. Ask for all three in the same conversation, so refusing one moves the discussion to the next.

How much of my revenue should come from one customer?

There is no legal threshold, but a customer above about a quarter of revenue is the point at which most owners should start treating the relationship as a risk rather than an asset. The exposure is not only losing them; it is the loss of negotiating power that follows, which is how long payment terms get accepted in the first place. Above roughly 40%, a buyer of your business will discount the valuation for concentration, and a lender will view the facility differently. The practical response is not to refuse the work but to actively fund the next tranche of smaller customers with the profit it generates.