Credit terms in Indian trade: who really decides

A brand selling only on marketplaces gets paid on a cycle it cannot negotiate. Ship one order to a distributor, a modern retail chain or a B2B buyer and that changes: now there are receivables, money owed on terms by a counterparty that can be slow, disputed or gone.

Terms are set by leverage, not by policy

Almost every brand has a credit policy somewhere and almost none of them applies it. What gets signed is decided by who needs the other more on the day, and for a young brand that is rarely you. A chain runs a standard vendor onboarding pack and does not open it for a supplier doing its first purchase order. A distributor who owns a market you cannot reach otherwise names the terms and waits. The real question setting your terms is whether the buyer has a substitute for you on the shelf, and whether you can walk away from the order without a hole in your plan.

Small brands accept terms they cannot fund because the order gets booked as revenue while the terms get treated as paperwork. It gets worse when sales incentives pay on dispatch rather than on collection, because then nobody inside your own business argues for shorter terms. Fix that incentive first. A salesperson paid on cash collected negotiates differently within a quarter. The same logic runs through distributor versus direct.

Three sets of terms, and only one is real

There are the terms on the purchase order, the terms in practice, and the terms you could actually enforce. They are rarely the same document. The PO may state a fixed number of days from invoice. In practice a chain pays on its own run, after its own document validation and goods receipt posting, so your stated terms become whatever the next run after validation happens to be. And what you could enforce is limited by what you actually signed, which for most brands is an onboarding form plus annexures nobody read.

Measure the gap instead of arguing about it. Track actual days from dispatch to cleared funds, by customer, every month, against that customer’s stated terms. The delta is your real term, and you should plan and price against it. A customer whose behaviour has contradicted its paperwork for six straight months will not change because you sent a reminder.

What you can realistically check before extending credit

You are not a credit bureau and you do not need to behave like one. At a brand’s level, a few checks pay for themselves. Confirm that the entity placing the order is the entity you will invoice, because group companies, franchise operators and a distributor firm trading under a proprietor’s name are separate things and only one of them owes you money. Confirm the GST registration is active and matches the name on the PO. If it is a registered company, check whether its public filings are current; a business that has stopped filing has usually stopped doing other things too. Ask two other brands supplying them how they get paid, and find those brands yourself rather than taking a reference list.

Then run the only genuinely predictive test: sell them something small on short terms and watch how they pay it. The first order is the credit check. Brands skip it because a first order from a large customer feels like a win, then spend two years funding the mistake.

A credit limit is an operational control, not a finance number

A limit that lives in a monthly finance review is not a control. It counts only if it stops a dispatch. Put the block inside the order-to-dispatch flow, name in writing the single person who can release stock against an account that is over its limit or past its date, and log every override with a reason and an expected recovery date. If a sales head can wave a dispatch through on a phone call, you do not have a credit limit, you have an opinion.

Run two triggers, not one. Value: total exposure against the agreed limit. Age: anything past its due date, whatever room is left. The account comfortably inside its value limit with an old invoice nobody can explain is the more dangerous one, and a value-only limit never catches it. What happens after the block fires is collections without wrecking the relationship.

Why the bigger order can be the worse one

An order is not revenue until it is cash. Before accepting a large one on long terms, multiply the value by the realistic days to cash and compare that against the margin the order earns. A large order on long terms can tie up more working capital than its own margin funds, while a smaller order on short terms pays for the next production run. That comparison is the entire decision and it takes ten minutes.

Then look at concentration. What share of total receivables would sit with this one counterparty, and if they paid two months later than promised, would you still make payroll and your own supplier payments? Seller cashflow management and the cash conversion cycle cover the mechanics. Remember too that terms are a precedent. A large customer’s terms lengthen over time, they do not shorten, and the first PO sets the floor for every negotiation after it.

Write the terms so both sides read them the same

Most arguments about lateness are arguments about when the clock started. Invoice date, dispatch date, goods receipt posting and the date a complete document set reached the right desk are four different start dates, and each side will pick the one that suits it. Specify the trigger event, the document set that must be complete, where those documents go and to whom, what counts as acceptance of delivery, how a deduction has to be raised and inside what agreed window, and the named escalation contact on both sides.

If their onboarding template governs, the terms live in the annexures, so read those before signing. Have your own legal advisor go through that standard pack once, properly, since you will sign the same one for years. Vendor contract clauses covers what else belongs in it, and vendor code to first PO covers the onboarding sequence. It is the mirror image of supplier payment terms, the money you owe rather than the money owed to you.