Finance for Non-Financial Managers training in Lugano · canton of TessinFinance for non-financial managers in Ticino: should you extend payment terms to win an order?
In Ticino, the combination of banking, fashion, trading and Italian-speaking family SMEs, together with proximity to Lombardy, gives business relationships with Italy particular relevance. For a non-financial manager, the question is whether an order secured through longer payment terms remains worthwhile once its financial consequences are considered.
What the literature establishes: suppliers also finance their customers
Mitchell A. Petersen and Raghuram G. Rajan (1997, The Review of Financial Studies) examine trade credit using data on small US firms. Their findings support, among other explanations, the idea that suppliers have information and collection advantages that can facilitate customer financing. Granting payment terms is therefore not merely a commercial negotiation: it also means holding a receivable and bearing its risk.
A second perspective: receivables tie up resources
Marc Deloof (2003, Journal of Business Finance & Accounting) observes a negative association between the accounts receivable collection period and profitability in a sample of Belgian firms. The underlying financial mechanism is straightforward: until an invoice is paid, the resources committed to the sale have not been fully recovered. This association does not, however, establish that shortening payment periods will consistently improve profitability.
The premature conclusion: always demand earlier payment
Shorter terms can reduce financing requirements, but may also make an offer less attractive or weaken a business relationship. Conversely, longer terms may help secure an order without its economic benefit necessarily offsetting financing costs and non-payment risk. The relevant decision therefore compares the order’s expected additional contribution with the additional costs and risks of the concession. (our executive and employee training programmes)
The limits: neither evidence specific to Ticino nor a universal rule
These studies concern US and Belgian firms; they do not provide findings specific to Ticino or establish an optimal payment period for every sector. An average collection period can also conceal a few seriously overdue invoices, disputes or substantial exposure to a single customer. In business with Italy, managers should also distinguish contractual terms from actual late payment and, where currencies differ, assess foreign exchange exposure separately.
A practical check in Lugano
Within SHR’s “Finance for non-financial managers” programme, an exercise could use the hypothetical case of a family-owned fashion trading SME in Lugano whose Lombardy-based buyer requests extended terms, potentially funded through a bank credit line. Before agreeing, the sales manager and finance team would record the original and proposed terms, the amount requiring financing, its estimated cost based on actual banking conditions, and the order’s expected additional contribution. After the due date, they would check when payment was received and how much, then compare the actual financing cost with the estimate while recording outstanding amounts separately. This worksheet would make the concession’s financial consequences verifiable without claiming to prove that the concession alone generated the sale. To go further: explore the Finance for Non-Financial Managers training in Lugano in the canton of Ticino, or browse our executive and employee training programmes in Switzerland.
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