The lag between purchase date and the date at which payment is due is known as the "terms lag". The lag between the due date and the date on which the buyer actually pays is termed the "due lag", and the lag between the purchase and actual payment dates is the "pay lag".

Question

Thus Pay lag=terms lag + due lag

State how you would expect the following events to affect each type of lag:

a)The company imposes a service charge on late payers.
b)A recession causes customers to be short of cash.
c)The company changes its terms from net 10 to net 20.

Answer 1

a. Due lag and pay lag fall.
b. Due lag and pay lag increase.
c. Terms lag and pay lag increase.