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Deferred billing is a strategy sometimes employed by vendors as a means of providing an extra courtesy to a valued customer. Sometimes known as delayed billing, the vendor allows a customer to place an order without the need to pay in advance. The vendor delivers the order and also chooses to delay the request for payment until an agreed upon date in the future.
As part of the process for deferred billing, the vendor often offers this extended delay in invoicing for payment to the customer with no accrual of finance or interest charges in the interim. The expectation is that the customer will pay for the items in a timely manner after the vendor issues an invoice for the order. In return for complying with the terms and conditions that govern the deferred billing arrangement, the credit customer can look forward to receiving the same courtesy with future orders.
The actual structure of a deferred billing process normally does protect the vendor in the event that the customer fails to live up to the terms and conditions that govern the extension of the delayed invoicing. Generally, if payment is not received within the terms outlined on the invoice, the vendor is free to begin applying finance charges to the outstanding balance for as long as it takes to fully pay for the purchase. In addition, the vendor may choose to refrain from extended any further deferred billing privileges to the customer. Should the balance remain unpaid for an extended period of time after the deferred invoice is issued, the vendor may choose to close the customer account to any type of future purchases other than cash.
Deferred billing is not unusual when formal contracts exist between a vendor and a customer. Clients who purchase high volumes of goods and services are often able to negotiate deferred billing terms that may delay the invoicing of outstanding balances for two or more monthly billing cycles. This approach allows the client to not incur interest charges and also stand a reasonable chance of generating revenue from the purchased goods or services that in turn can be used to retire the debt. This is particularly true when the acquired products are used to produce goods and services that are in turn sold by the customer to his or her clients. As payments are received from the customer’s clients, the generated revenue is used to pay the originating vendor.