SMEs across Nigeria and the wider African continent often destroy their profit margins by selling goods on credit at the exact same price as cash transactions.
In high-inflation environments where borrowing costs are steep, offering interest-free credit to buyers is a silent drain on working capital.
When you delay receiving payment, you are effectively providing an interest-free loan to your customer while your own business bears the financing costs.
To protect your cash flow and keep your business resilient, you must learn how to set credit prices different cash prices.
Why unified pricing hurts African SMEs
Many small business owners fear that charging more for credit will drive customers away to competitors.
However, maintaining a single price for both immediate cash and 30-day or 60-day credit ignores the time value of money and the real risk of bad debts.
Consider a Lagos-based wholesale packaging supplier selling a batch of cartons for 1 million Naira. If paid in cash, that cash is immediately available to restock inventory.
If the client pays in 60 days, inflation erodes the purchasing power of that 1 million Naira, and the business may need to borrow at high interest rates to buy new stock.
By failing to adjust the credit price, the supplier absorbs all the macroeconomic risks while the buyer enjoys free financing.
How to calculate your credit premium
To set credit prices different cash prices, you must calculate a credit premium that covers three specific costs: the cost of capital, inflation, and default risk.
First, determine your cost of capital. If you rely on a bank overdraft costing 30 percent annually to fund your inventory, a 60-day credit term costs you approximately 5 percent in interest.
Second, factor in inflation. If annual inflation is 30 percent, the value of your money drops by about 2.5 percent every month, meaning a 60-day delay costs you 5 percent in purchasing power.
Third, add a risk premium for potential defaults or late payments, typically between 1 and 3 percent depending on the customer’s payment history.
Combining these factors means your credit price for a 60-day term should be roughly 12 percent higher than your cash price to maintain the same real margin.
Navigating local regulations and card rules
Before implementing dual pricing, you must understand the difference between commercial trade credit and retail card payments.
For B2B transactions and informal trade credit, you are entirely free to negotiate different prices for cash and delayed settlement terms.
For retail transactions involving point-of-sale terminals, the Central Bank of Nigeria strictly prohibits merchants from adding a surcharge directly onto card payments.
To remain compliant in retail environments, you should set your standard visible price as the credit price, and then offer a discount for cash or direct bank transfers.
This approach achieves the same financial result without violating regulatory guidelines or card network merchant agreements.
Steps to implement dual pricing safely
Begin by auditing your accounts receivable to understand your average collection period and how much capital is currently locked up in unpaid invoices.
Next, clearly communicate your pricing policy to your customers by listing both the cash price and the credit price on your quotations and invoices.
For B2B clients, you can frame the credit premium as an early payment discount, such as offering a 2 percent discount if the invoice is settled within 10 days instead of 30 days.
Train your sales team to explain that the cash discount reflects the immediate liquidity benefits, which are passed directly back to the customer.
Finally, monitor your collection times closely to ensure that customers paying the lower cash price are actually paying immediately, rather than stretching terms.
SME owners should review their current credit terms this week, calculate the true cost of delayed payments, and update their price sheets to reflect the difference between cash and credit transactions.
