A commercial decision is rarely simple. Selling more can increase revenue, but also Working Capital Requirement. Increasing margin can improve profitability, but reduce volume.
Granting payment terms can help win a customer, but tie up cash. Accepting more risk can open up a growth opportunity, but expose the company to delay or loss.
Reducing risk can protect the balance sheet, but cause the company to miss profitable business. That is why a good decision cannot be made from a single indicator.
Margin alone is not enough. V olume alone is not enough. Risk alone is not enough. Payment terms alone are not enough.
The real economic decision consists in arbitrating between these dimensions. The company must sell, but sell business that turns into cash. It must protect itself, but without unnecessarily blocking growth.
It must accept certain risks, but only when they are rewarded or strategically justified. It must grant customer credit, but with a clear awareness of the capital tied up.
The central question therefore becomes: does this opportunity deserve the level of cash, risk, and delay it requires?
An Economic Decision Does Not Maximize
Everything at Once
Ideally, the company would like to obtain everything. High volume. Strong margin. Low risk. Fast payment. Few disputes. A smooth customer relationship.
Limited exposure. Predictable cash. But in reality, these dimensions often come into tension. A large account may bring significant volume but impose long payment terms.
A high-margin customer may be riskier. A very safe customer may strongly negotiate prices. A growing market may require more flexible conditions.
A strategic customer may consume a lot of capital before producing its full value. Economic decision-making begins when the company accepts that not everything can be maximized at the same time.
It must choose. Or rather, it must balance. The objective is not to look for the perfect sale. The objective is to understand the compromise the company accepts.
Every commercial decision contains an implicit exchange: payment time for volume, risk for margin, margin for collection speed, price for payment terms, exposure for potential.
The quality of the decision depends on the clarity of that exchange.
Revenue Is a Promise, Not Yet a Contribution
V olume is often the most visible indicator. It gives an impression of development, momentum, market share, and commercial success. But revenue is not yet a complete economic contribution.
It must be converted into margin. Then into a receivable. Then into cash. Then into cash net of delays, disputes, deductions, financing costs, and risks.
High revenue with low margin, long payment terms, frequent disputes, and significant risk can have a weak real contribution. Conversely, a more modest volume with good margin, fast payment, and little friction can create much more value.
V olume is therefore necessary, but it must be challenged. What volume? With what margin? With what payment term? With what risk?
With what management cost? With what probability of collection? A decision based only on revenue can produce growth that consumes cash without creating enough value.
V olume must be read together with its financial quality.
Margin Must Be Adjusted by Time
Margin indicates what the company earns on the sale. But it does not say when that gain becomes available. A 10% margin collected at 30 days does not have the same quality as a 10% margin collected at 120 days.
Payment time transforms margin. The later cash arrives, the more margin must absorb the cost of tied-up capital. If the company sells €1 million with a 10% margin, it shows €100,000 in gross margin.
But if that million is collected at 120 days, with a cost of capital of 8%, the financing cost of the delay is around €26,300.
The economic margin after cost of delay is no longer exactly the same. And if the customer pays late, disputes, or deducts, the real contribution falls further.
Margin must therefore be analyzed with time. A high margin can justify a long payment term. A low margin does not tolerate a long payment term well.
An average margin can be excellent if it is collected quickly and without friction. The right question is not only: what is the margin?
The right question is: what margin remains after the time needed to collect it?
Payment Terms Are a Pricing Variable
Payment terms are often negotiated as a secondary condition. They should not be. A longer payment term is a financial concession. It has value for the customer because it improves their cash position.
It has a cost for the supplier because it ties up capital. Payment terms must therefore be treated as a pricing variable.
A price at 30 days is not equivalent to a price at 90 days. A 2% discount may sometimes cost less than an additional 60 days of payment, depending on the amount, cost of capital, and payment behavior.
Conversely, granting a longer payment term may be preferable to reducing the price if the cost of capital remains lower than the discount requested.
But it has to be calculated. Without calculation, the company may believe it has preserved margin when it has actually granted a significant cash concession.
Payment terms must therefore enter the economic negotiation. Price, volume, and payment terms must be discussed together.
Risk Must Be Rewarded or Controlled
Accepting risk is not necessarily a mistake. All growth contains some risk. A new customer may be less well known. An emerging market may be more uncertain.
A customer in transformation may have a temporarily fragile financial position. A large account may concentrate significant exposure. The problem is not accepting risk.
The problem is accepting risk without reward, limit, or monitoring. Risk may be acceptable if margin is sufficient, potential is real, exposure is limited, payment terms are controlled, guarantees exist, the relationship is strategic, or the sale is structured.
It may be unacceptable if margin is low, payment is slow, disputes are frequent, documentation is weak, and the customer lacks transparency.
Risk must therefore be treated as an economic dimension. What do we receive in exchange for the risk accepted? More margin? More volume?
A strategic position? A guarantee? Access to a market? Partial advance payment? If the answer is unclear, the risk is probably poorly rewarded.
The Right Arbitration Depends on the Margin-
Risk Pair
Margin and risk must be read together. Low margin with high risk is generally a dangerous combination. It leaves little room for error.
A delay, deduction, dispute, or partial loss can absorb the entire contribution. High margin with low risk is obviously attractive. But not all opportunities look like that.
The interesting question concerns the intermediate zones. High margin, high risk. Low margin, low risk. Medium margin, medium risk. High margin, slow payment.
Low margin, fast payment. A risky customer can be acceptable if the margin rewards the risk and the exposure is controlled. A low-risk customer can be acceptable with lower margin if they pay quickly, generate few disputes, and consume little capital.
The margin-risk pair helps move beyond simplistic logic. A customer is not refused simply because they are risky. Nor are they accepted simply because they appear profitable.
The company must assess whether the expected margin justifies the risk taken.
The Right Arbitration Also Depends on the
Volume-Term Pair
V olume and payment terms must also be read together. A long payment term on a small volume may be manageable. A long payment term on very high volume can tie up a lot of capital.
A customer buying €100,000 per year at 90 days does not create the same issue as a customer buying €10 million per year at 90 days.
The second may be commercially very attractive, but it requires significant financing capacity. The more volume increases, the more payment terms become structuring.
That is why large accounts must be analyzed with particular attention. They bring revenue, but they may also impose payment terms, portals, procedures, deductions, and disputes that consume significant cash.
V olume should not blind the company. It must be compared with the capital required to support it. V olume growth is healthy only if the company can finance the payment term that comes with it.
The Right Arbitration Finally Depends on the
Margin-Term Pair
Margin and payment terms are closely linked. A high margin can absorb a longer payment term. A low margin requires faster collection.
If the company sells with a 3% margin, a 120-day payment term can become very expensive in proportion to the contribution. If it sells with a 30% margin, the same term may be more bearable, even though it still uses capital.
This does not mean that high margin allows everything. A long payment term can still weaken cash and increase risk. But margin gives absorption capacity.
A mature commercial policy should therefore avoid standard payment terms applied without considering margin. Not all customers should receive the same conditions if their economic contribution is very different.
The payment term must be consistent with the expected margin.
Real Payment Time Matters More Than
Negotiated Payment Time
Decisions are often made based on contractual payment terms. But cash depends on real payment time. A customer may have 60-day contractual terms and pay at 85 days.
Another may have 45-day terms and pay at 45 days. Another may have 30-day terms but regularly generate disputes that push back collection.
Real payment time includes customer behavior and process quality. It includes delays, rejections, disputes, validations, partial payments, deductions, and cash application difficulties.
A good arbitration must therefore use observed data. What is the real average payment time? How frequent are delays? How variable is payment?
Does the customer keep their commitments? How many invoices are paid without friction? The contractual term is a promise. The real term is the economic performance.
The second should guide the decision.
Disputes Completely Change the Arbitration
A customer may have acceptable margin and payment terms, but generate many disputes. In that case, the arbitration must be revised. Disputes extend collection time.
They consume internal time. They can lead to credit notes or concessions. They make the cash forecast less reliable. They damage the relationship.
They can hide weaknesses in price, delivery, billing, or contract. A margin that looks sufficient can become insufficient if the customer is highly dispute-prone.
The risk is not only payment default. The risk is also permanent friction in cash conversion. A good arbitration must therefore integrate the quality of the customer cycle.
A high-margin customer with constant disputes may be less attractive than a more moderate-margin customer that is very smooth. Cash conversion quality is a component of value.
Deductions Reduce Real Cash
Deductions are another often underestimated element. The customer pays, but pays less than expected. Penalties. Price differences. Expected discounts. Logistics disputes. Returns.
Unissued credit notes. Administrative fees. Offsets. If these deductions are frequent, they reduce the value actually collected. They can turn an apparent margin into a weaker contribution.
The margin-volume-risk-term arbitration must therefore integrate net cash, not only the gross invoice. How much does the customer really pay? What share of invoices is deducted?
Are deductions justified? Are they challenged? Are they recurring? Are they integrated into the commercial negotiation? A customer that systematically deducts part of the invoiced amount imposes a form of post-invoice discount.
If that discount is not measured, the economic decision is distorted.
A Good Decision Can Accept a Weak Indicator
Mature arbitration does not seek to have all indicators in the green. It can accept one weakness if it is compensated by a strength.
A long payment term can be accepted if margin is high and risk is low. Higher risk can be accepted if volume is strategic and exposure is controlled.
Lower margin can be accepted if the customer pays quickly, generates few disputes, and opens an important market. Moderate volume may be preferable if cash is fast and net profitability is high.
What matters is that the decision is conscious. A weak indicator is not necessarily a reason to refuse. But it must be compensated.
If the payment term is long, what do we receive in exchange? If margin is low, what justifies the effort? If risk is high, how is it rewarded or limited?
If volume is significant, can we finance the exposure? The bad decision is not the one that accepts a compromise. It is the one that does not know which compromise it is accepting.
Arbitrations Must Differ by Segment
Not all customers should be arbitrated in the same way. A strategic customer, a small recurring customer, a distributor, a large account, an export customer, a public-sector customer, a growing customer, or a fragile customer do not have the same profile.
Their volume, margin, payment terms, risk, and complexity differ. A single policy may be too rigid or too permissive. Segmentation is needed.
High-contribution customers with reliable payment. High-contribution customers with long payment terms. Low-margin customers with fast cash. High-volume customers with high complexity. Risky customers with high potential.
Low cash-return customers. Each segment calls for a different strategy. Develop. Secure. Renegotiate. Limit. Monitor. Automate. Invoice differently. Request guarantees. The right arbitration is not only customer by customer.
It is also portfolio by portfolio.
The Role of Scenarios
To arbitrate, it is useful to build simple scenarios. Scenario 1: acceptance under requested terms. Scenario 2: acceptance with reduced payment terms.
Scenario 3: acceptance with a deposit. Scenario 4: acceptance with a capped limit. Scenario 5: acceptance with adjusted price. Scenario 6: refusal or suspension.
Each scenario can be compared on a few criteria: revenue, margin, average exposure, cost of capital, risk, likely real payment time, cash impact, and commercial impact.
This approach moves discussions away from binary debates. The question is no longer only: do we accept or refuse? The question becomes: under what conditions does this sale become economically acceptable?
That is exactly the role of business-oriented Credit Management. It does not block for the sake of blocking. It structures the conditions of acceptability.
An Example of Economic Arbitration
Imagine a customer requesting a €1 million order. Gross margin: 8%, or €80,000. Requested payment term: 90 days. Cost of capital: 8%.
Estimated risk: moderate. History: average payment at 105 days, with a few disputes. The financing cost over 105 days is: 1,000,000 x 105 x 8% / 365 = approximately €23,014.
Margin after financing cost becomes around €56,986, before including risk, disputes, and management cost. If the customer is strategic and can generate recurring volumes, the deal may remain attractive.
But it is not equivalent to a €1 million sale at 8% margin collected quickly. The company can then arbitrate. Accept at 90 days but with a strict limit.
Request a 30% deposit. Invoice by milestones. Negotiate 60 days while maintaining the price. Slightly increase the price to cover the term.
Condition future deliveries on payment of due amounts. This calculation does not automatically provide the answer. It makes the compromise visible.
Price Can Be Adjusted to Payment Terms
A concrete way to arbitrate is to connect price with payment terms. If the customer requests more time to pay, the price should be able to reflect the financing cost.
This is not always commercially possible. But it is a sound logic. A longer payment term is value given to the customer.
It must be rewarded in one way or another. This can take several forms. Higher price. Discount for faster payment. Deposit. More frequent invoicing.
Reduced discount. V olume commitment. Guarantee. The objective is not to turn every negotiation into a strict financial calculation. The objective is to prevent payment terms from becoming an invisible concession.
When payment time is free, it often ends up being overconsumed.
Risk Can Be Reduced Without Losing the Sale
Arbitrating does not always mean refusing. High risk can be made acceptable through suitable structuring. Deposit. Payment before delivery. Bank guarantee. Credit insurance.
Temporary limit. Phased deliveries. Milestone billing. Close monitoring. Reduction of maximum exposure. Suspension clause in case of delay. Conditional order validation. These tools make it possible to preserve a commercial opportunity while reducing exposure.
The right arbitration is not about choosing between growth and prudence. It is often about turning a risky sale into a controlled sale.
That is where the credit function brings value. It does not close the door. It defines the conditions under which the door can remain open.
Cash Must Become a Commercial Decision
Variable
In many companies, cash is observed after the commercial decision. The company sells first. Then monitors cash. This logic is insufficient. Cash must enter the commercial decision before signature.
What will average exposure be? When will the money be collected? What real payment time is likely? What elements could block the invoice?
What level of dispute is expected? Does the customer keep their promises? What limit will be consumed? What margin will remain after cost of credit?
These questions must be part of the arbitration. Not to slow sales. But to prevent apparently good sales from creating liquidity pressure.
A company that integrates cash into the commercial decision sells better. It does not only sell more. It sells financeable sales.
Indicators Must Be Combined, Not Opposed
Indicators are often looked at separately. Margin. Revenue. DSO. Overdue receivables. Limits. Risk. Disputes. Deductions. Each shows part of reality. But the decision lies in their combination.
High DSO may be acceptable if margin is strong and risk is low. Low margin may be acceptable if cash is fast and volume stable.
Higher risk may be acceptable if the limit is low and potential is significant. High volume may be problematic if margin is low and payment terms are very long.
Indicators should not be used as isolated verdicts. They must be connected. Economic decision-making is an integrated reading. This integration is often what is missing in commercial and financial arbitrations.
Poor Arbitrations Often Come From
Asymmetry of Visibility
Sales sees commercial potential. Finance sees Working Capital Requirement. Credit Management sees exposure and delays. Collections sees collection difficulties. Billing sees rejections.
Accounts receivable sees payments and deductions. Each function holds part of the reality. If this information is not shared, arbitration is biased.
Sales may underestimate the cost of payment terms. Finance may underestimate strategic potential. Credit may underestimate future margin. Collections may see problems too late.
Management may look at revenue without seeing exposure. A good decision requires shared visibility. The customer must be seen as a whole: potential, margin, cash, risk, behavior, complexity, contribution.
Without this complete view, each function defends its indicator. The company needs an arbitration.
The Role of Credit Management in Arbitration
Credit Management is at the heart of this integrated decision. It must connect dimensions that are often separated. Customer risk. Limit. Payment terms.
Exposure. Overdue receivables. Margin. Potential. Disputes. Billing quality. Payment behavior. Cost of capital. Its role is not only to say yes or no.
It is to help the company formulate the economic conditions of yes. Yes, if the term is reduced. Yes, if a deposit is obtained.
Yes, if the limit is temporary. Yes, if disputes are resolved. Yes, if the price includes the payment term. Yes, if deliveries are phased.
No, if margin rewards neither the risk nor the capital tied up. Credit Management then becomes an economic arbitration function. It protects cash, but it also supports growth when growth is financeable.
The Role of Sales in Arbitration
Sales has an equally important role. It must bring insight into potential, competition, customer need, negotiation context, and the strategic weight of the relationship.
But it must also integrate that payment terms, risk, and disputes have economic value. A commercial request is stronger when it already includes the counterparts.
Why accept this payment term? What volume justifies it? What margin finances it? What commitment duration? What visibility on payment? What possibility to improve terms later?
When sales brings these elements, dialogue with finance becomes more constructive.
The debate is no longer reduced to “sales wants to sell” and “finance wants to block.”
It becomes a discussion about the best way to turn an opportunity into collected value.
The Role of Finance Leadership
Finance leadership must provide the framework for arbitration. What level of Working Capital Requirement can the company support? What cost of capital should be used?
Which exposure thresholds require validation? What minimum margin is expected for certain payment terms? Which customers or markets are strategic? Which risks are acceptable?
Which indicators must be monitored? Without a framework, every arbitration becomes an isolated negotiation. With a framework, the company can decide faster and more clearly.
Finance should not only say that cash is important. It must make cash calculable in decisions. It must provide the reference points that allow compromises to be compared.
A good financial framework does not block growth. It helps finance the right growth. The Right Decision Is Rarely the Most Prudent
or the Most Aggressive
A poor reading often opposes prudence and development. On one side, sell as much as possible. On the other, reduce risk as much as possible.
But the right economic decision is rarely one of these two extremes. Too much prudence can make the company miss profitable opportunities.
Too much commercial aggressiveness can create growth that consumes too much cash and too much risk. The objective is to find the point of balance.
The point where margin, volume, payment terms, and risk form an acceptable combination. This point varies depending on the company’s strategy, liquidity, access to financing, risk appetite, competitive position, and customer portfolio.
There is no universal answer. There is a method: make compromises visible, quantify what can be quantified, structure what can be controlled, and decide consciously.
Conclusion: Arbitrating Means Choosing the
Growth the Company Can Finance
Arbitrating between margin, volume, risk, and payment terms means moving from an isolated reading of indicators to a real economic decision. Revenue says how much the company sells.
Margin says what it earns in theory. Payment terms say how long it finances its customer. Risk says what uncertainty it accepts.
Disputes, deductions, and delays say how smooth or difficult cash conversion will be. None of these elements is enough alone. A good commercial decision must combine them.
Selling more is not always better if cash does not follow. Selling with a good margin is not enough if payment terms and risk destroy part of the contribution.
Reducing risk is not always optimal if it means losing profitable growth. Collecting fast is valuable, but the company must also look at margin and potential.
The economic decision consists in choosing the compromise that creates the most value. This requires asking the right questions. What margin remains after the cost of delay?
What volume justifies the exposure? What risk is rewarded? What payment term can be financed? What conditions make the sale acceptable? Which growth deserves our capital?
This is where Cash & Working Capital fully connects with commercial strategy. Cash is not a brake on growth. It is the condition of its durability.
A mature company does not only seek to sell more. It seeks to sell better, collect properly, and finance the customers that truly create value.