Amazon Vendor Payment Terms & Quick Pay Calculator

Payment terms, often referred to as settlement terms, define the agreed timeframe between when Amazon issues a Purchase Order (PO) and when the vendor receives payment for the supplied goods.

These conditions are established in the vendor agreement within Vendor Central and can vary based on product category, account size, and previous trade negotiations.

When negotiating payment terms, you'll encounter abbreviations like EOM and NET:

The Quick Pay Discount (QPD) is part of the payment terms negotiated between 1P vendors and Amazon.

It provides vendors an option to receive payments faster in exchange for a discount on the invoice amount. For instance, if your payment terms are 30 NET but you include a Quick Pay Discount, Amazon might pay within 15 days but deduct the agreed discount (e.g., 3%) from the invoice.

While a QPD can enhance your cash flow, it also reduces your gross margin. Whether to accept a QPD depends on how much value faster payments bring to your free cash flow situation.

Payment terms directly affect your cash flow, making it essential to carefully evaluate their impact on your business. Accepting longer payment terms like 90 or 120 days makes it more challenging to finance operations and pay your own suppliers for raw materials, freight, and other costs.

Shorter payment terms or faster payouts through a Quick Pay Discount improve cash flow but might reduce overall profitability. Finding the right balance and actively including payment terms in your annual vendor negotiations is critical.

Payment terms can directly influence shortage deductions with Amazon. Shorter terms (e.g., 30 NET) and Quick Pay Discounts give Amazon less time to locate units lost or delayed during the inbound process and match them to outstanding invoices.

Here's why this can create problems:

1. Amazon deducts the QPD first: If you've agreed to a QPD, Amazon applies the discount and pays your invoice before confirming all units have been received.
2. Amazon raises shortage claims later: If units are found missing, Amazon raises a shortage claim and deducts the amount from other outstanding invoices.
3. Vendors take the hit twice: Not only is the QPD deducted from your original invoice, but Amazon also short-pays other invoices, even when the shortage claim is invalid.

A first-party vendor has agreed 30 NET payment terms with a 3% Quick Pay Discount. They send an invoice for $20,000 on January 1st. Amazon pays the invoice on January 15th and deducts the 3% QPD ($600).

Later in February, Amazon claims a $2,000 shortage and deducts this amount from outstanding payments as a provision for receivables. As a result, the vendor receives only $17,400 instead of the full $20,000, losing $2,600 due to both the QPD and shortage deduction.

While the vendor can dispute the shortage claim, Amazon won't release any deducted payments until the supplier provides sufficient evidence that goods were delivered in full. This process can take several weeks, tying up working capital.

Standard payment terms typically range from 30 days (30 NET) to 60 days (60 NET). Recently, Amazon has begun requesting 90 and up to 120 days from vendors. The higher the payment days number, the longer before Amazon releases payment for invoices.

To get Amazon to agree to shorter invoice settlement, you can offer a QPD, also known as an early payment discount. These discounts typically range between 1-3% and incentivize Amazon to pay vendor invoices early.

Amazon will negotiate payment conditions in two scenarios:

1. When Amazon enrolls your account in Vendor Central
2. During annual trade negotiations

In both cases, Amazon often requests an increase in payment terms combined with a higher Quick Pay Discount.

While the decision to agree or reject these requests depends on your financial situation, you should only accept higher payment terms in exchange for a cost price increase or lower trading terms.