Payment Terms
This article explains how payment terms are represented in Model Reef.
You will learn:
How to translate real world payment terms into delays.
How payment terms affect Accounts Receivable and Accounts Payable.
How payment terms drive cash timing without changing P&L timing.
Payment terms are one of the main levers that connect operational reality to cashflow.
Payment terms as delays
In Model Reef, payment terms are modelled as delays between:
The period when a transaction is accrued.
The period when the corresponding cash is received or paid.
You set these in the variable timing settings using expressions such as:
0 days (cash at the same time as accrual).
30 days, 45 days, 60 days.
1 month, 2 months.
2 weeks or 4 weeks where models use weekly timing.
The engine then calculates when cash should move based on the model's periodicity and the exact delay you specify.
Customer payment terms
For revenue variables:
Revenue is recognised in P&L when earned.
Customer payment terms define when cash is collected.
If payment terms are longer than zero:
Accounts Receivable increases between accrual and cash collection.
The Cashflow Statement shows receipts when cash is received.
The Cash Waterfall uses the same cash receipt timing.
Typical patterns:
Subscriptions with monthly billing and short payment terms.
Project work with milestoned billings and longer payment terms.
Supplier and staff payment terms
For COGS, Opex and Staff variables:
Costs are recognised in P&L when incurred.
Payment terms define when cash is paid to suppliers or staff.
If payment terms are longer than zero:
Accounts Payable increases between accrual and payment.
Staff related accruals also appear inside the same payable bucket.
The Cashflow Statement shows payments when cash is paid.
Examples:
30 day supplier terms for materials.
Monthly salary payments with short lags between accrual and pay date.
Quarterly invoicing from key service providers.
Tax and interest payment timing
For Tax and Liability variables:
Tax Expense and interest expense are accrued based on earnings and loan balances.
Tax payment frequency and interest payment settings define when cash leaves the business.
These are usually modelled via periodic delays rather than per transaction payment terms.
The underlying concept is the same: accrual first, cash later.
Modelling real world payment behaviour
To represent more complex behaviour such as:
Part upfront, part on completion.
Deposits and final balances.
Mixtures of immediate card payments and delayed invoice payments.
You can use:
Multiple variables for different payment patterns (for example card revenue vs invoice revenue).
Different delays on each variable to reflect each pattern.
Weighted combinations at the driver or assumption level to mix behaviours.
This keeps each variable's timing simple while still capturing realistic blended behaviour across the portfolio.
Reviewing payment term impacts
You can see the impact of payment terms by:
Looking at Accounts Receivable and Accounts Payable trends in the Balance Sheet.
Reviewing the Change in net working capital line in the Cash Waterfall.
Comparing P&L revenue and costs to cash receipts and payments over time.
Small changes in payment terms can have large effects on cash runway and funding needs, especially in growing businesses.
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