Shorter Payment Terms

Procurement Low Ambition Downstream supply chain actors Off-taker

Definition

Shorter payment terms are financial arrangements where buyers pay producers within a significantly reduced timeframe, often immediately or within a week of purchasing the crop. These terms address cash flow challenges for producers, enabling quicker access to funds without the need to sacrifice price or stability. By promoting prompt payments, this innovation supports smallholders' financial resilience and strengthens trust in formal marketing channels.

Lead Actors

Downstream supply chain actors; Off-taker

Target Demographics

Farmers with low resources or savings

Objectives addressed

Farmer related

Boost access to finance: Shorter payment terms can directly improve farmers' access to finance by shortening their cash flow cycle, enabling them to cover immediate expenses and reduce reliance on informal credit

Strengthen income stability: Shorter payment terms can strengthen farmers' financial stability by improving cash flow and reducing financial strain.

Business related

Lower credit losses: Shorter payment terms can reduce buyers' credit losses by minimising the risk of non-payment or delayed payment of pre-financed services or inputs, by ensuring quicker cash turnover and improved financial stability for the farmers.

Reduce side-selling: Shorter payment terms reduce side-selling by farmers by providing timely access to funds, thereby increasing their financial commitment to their main buyers and reducing their temptation to seek alternative, potentially higher-paying, but less reliable markets.

Contexts Best Suited to

Supply chains where competition is high: to reduce the chance of side-selling.
Farmers that are more vulnerable: where immediate cash needs are highest.

Key Risks

Cash flow pressure: payment terms with buyers upstream can put pressure on the buyers ability to comply with the agreed payment terms with smallholder farmers.