Terms Due vs net terms financing and factoring
You can run trade credit yourself, or pay someone else to carry it. Both are legitimate. Here is how to decide, and what each one costs.
The options
- In-house trade credit
- You give buyers terms, carry the balance until they pay and chase it yourself. Terms Due is the credit control around this.
- Net terms financing (B2B buy now, pay later)
- A third party approves the buyer, pays you at or soon after checkout less a fee, and collects from the buyer on terms. The provider carries the credit risk and owns the buyer relationship for payment.
- Invoice factoring
- You sell specific invoices to a factor, who advances most of the value now, collects from the buyer and pays you the rest less fees when the buyer pays.
- Invoice finance or discounting
- A loan secured on your receivables as a whole. You keep collecting; the lender advances against the book.
- Trade credit insurance
- You carry the credit and collect it, but an insurer pays out if a buyer fails. Usually for larger accounts.
Side by side
| In-house with Terms Due | Net terms financing | Factoring | |
|---|---|---|---|
| Who carries the credit risk | You | The provider | Usually the factor (non-recourse) or you (recourse) |
| When you get paid | On the due date, or when collected | At or soon after checkout | Advance now, balance when the buyer pays |
| Typical cost | App subscription plus card fees on collected payments | A percentage of each order, commonly a few percent | Fees and interest on the advance, often several percent of invoice value |
| Who decides a buyer's limit | You | The provider, by their rules | The factor, per buyer |
| Who chases the buyer | The app, under your name | The provider, under theirs | The factor, under theirs |
| Works on Shopify B2B terms | Yes, on native terms | Usually replaces Shopify terms at checkout | Separate from Shopify |
| Buyers who do not pass the provider's checks | You decide | No terms for them | Not factorable |
Fees vary widely by provider, volume and buyer quality. Get quotes before deciding, and read the recourse terms.
When financing makes sense
If cash today is worth more to you than the margin you give up, financing is rational. A fast-growing brand that needs to buy stock for next season, or a business with a bank that will not lend against receivables, may be better off paying a few percent to be paid at checkout. The provider's credit checks also protect you from buyers you would have struggled to assess yourself.
The cost is control. The provider sets the limits, decides which buyers qualify, chases in their own name and may decline the very accounts you most want to win. Your buyer's experience of being chased is now someone else's experience, with your name attached.
When in-house makes sense
If your margins are thin, a few percent of every order is a large share of your profit, and you are paying it on buyers who would have paid you anyway. If your trade accounts are long-standing, you already know who pays and who does not. And if you want the relationship with the buyer, including the conversation when they are late, to be yours, then credit control is something you run rather than outsource.
The condition is that you actually run it: limits, holds, reminders and collection on a schedule, not a spreadsheet and good intentions. That is what Terms Due provides for a fixed monthly fee.
Worked example
What a few percent costs
A food wholesaler turns over $600,000 a year on trade terms with a 22 percent gross margin, about $132,000. A financing provider offers to pay at checkout for 3 percent of each order. That is $18,000 a year, or 14 percent of the gross margin, in exchange for cash about 35 days earlier and no bad debt.
Running credit in-house with Terms Due on the Growth plan costs $1,188 a year plus card fees on what is collected. The wholesaler's bad debt last year was $4,100, and most of it was one account that would have been held at 14 days. The question is whether $12,700 a year is worth paying for 35 days of cash and someone else's credit checks. For some businesses it is; for most established wholesalers it is not.
| Annual trade sales | $600,000 |
|---|---|
| Financing fee at 3% | $18,000 a year |
| Terms Due, Growth plan | $1,188 a year |
| Last year's bad debt | $4,100 |
The buyer's experience
Financed
- Applies to the provider at checkout and may be declined.
- Gets terms set by the provider, not by you.
- Pays the provider; reminders come from the provider.
- Any dispute involves three parties.
In-house with Terms Due
- Gets terms from you after your credit application.
- Limit and terms set by you, changed by you.
- Pays you; reminders come under your store name.
- A dispute is a conversation between the two of you.
A middle path
Many wholesalers run in-house credit for most accounts and insure or finance the two or three largest, where a single failure would hurt. Terms Due's aging report shows where that concentration is; the aging guide explains how to read it.
Questions
Is Terms Due a lender?
No. Terms Due does not advance money or carry credit risk. It helps you run the trade credit you already give through Shopify's payment terms.
Can I use Terms Due alongside a financing provider?
For accounts the provider does not cover, yes. Accounts that pay through the provider are not on terms with you, so there is nothing for Terms Due to chase.
Does factoring affect my Shopify orders?
Not directly. Factoring happens outside Shopify, against the invoices. The buyer pays the factor rather than you, so you would mark the order paid when the factor confirms.
Is trade credit insurance worth it for small accounts?
Rarely. Premiums and minimums are set for larger books. For many small accounts, a limit and a hold rule prevent most of what insurance would pay for.
Related
vs accounting software
Why accounting software credit control does not stop Shopify orders, and how Terms Due works alongside Xero or QuickBooks for B2B net terms.
Read moreSetting credit limits
How to decide credit limits and payment terms for wholesale buyers: order value, trade references, credit checks, starting limits and when to review.
Read morePricing
Terms Due pricing: free for up to three trade accounts, then Starter $49, Growth $99 and Scale $199 a month with a 14-day trial, billed through Shopify.
Read moreStop chasing wholesale invoices by hand
Install Terms Due, set a credit limit for each buyer and let the app hold, remind and collect.
Install on Shopify