What's the actual cash-flow tradeoff of offering Net 60 terms to a large wholesale account vs requiring payment upfront?

Do the arithmetic before the argument

The carrying cost of a term is the order value multiplied by your cost of capital multiplied by days over 365. At the bank prime loan rate of 6.75% published in the Federal Reserve's H.15 release for the week of 4 to 10 September 2026:

On a $500,000 annual wholesale account paid on Net 60, that is roughly $5,500 a year in financing. Prime is a reference rate, not your rate. If you borrow on a revolver at prime plus 2, use 8.75%. If you are funding terms out of retained cash you would otherwise deploy in inventory or paid media, use the return on that alternative, which is usually far higher than prime and is the honest number for a growing merchant.

The three costs the interest calculation misses

1. Slippage. Net 60 is a promise about day 60. Your actual days sales outstanding is the number that costs money. A book that runs 14 days past term on average is a Net 74 book, and it should be modelled as one.
2. Bad debt. Use your realized write-off rate on wholesale accounts over the last three years. If you do not have one, that is the finding, and it should be resolved before the terms policy is, not after.
3. Collections labor. Somebody chases. On Shopify that person has reminders and a Flow trigger, and no aging view, no statements and no partial-payment allocation. Count their hours honestly, because this is the line that grows with the account count rather than with revenue.

What you get back

Terms are not charity. They buy order size, order frequency and displacement of a competitor who does not offer them. The tradeoff only resolves against the contribution margin on the incremental volume the terms actually cause.

The test we use: would this account have placed this order at this size on payment upfront? If yes, the terms are a price cut you did not put in the price list. If no, compare 1.11% plus your bad-debt rate against the contribution margin on the increment. Most wholesale gross margins clear that bar comfortably, which is why terms are standard, and why the discipline belongs on which accounts get them rather than on whether to offer them at all.

Thresholds we would actually act on

• Offer upfront-only to any account in its first two orders, regardless of size. The reference check is the two orders.
• Offer Net 30 as the default. It is the shortest term the market treats as normal, and it halves the carrying cost against Net 60.
• Offer Net 60 where the account's payment history is clean and the volume increment is real. Price it: a 1 to 2% terms differential against the Net 30 price list is defensible and easy to explain.
• Offer Net 90 only against a signed credit application with a limit you can enforce. On Shopify today, enforcement is something you build.

When NOT to extend terms

• When the account is already past due on an existing order. Shopify will not stop the next order for you.
• When the account represents more than a fifth of receivables. Concentration is a bigger risk than rate, and no interest-rate math captures it.
• When the request arrives with a purchase-order process you have not seen. Long approval chains inside the buyer are the most common cause of "we always pay late, it's just our AP cycle."

This page describes commercial modelling, not financial, credit or accounting advice. Rates and write-off assumptions are yours to set with your own advisors.