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The Hidden Cost of Getting Paid: Net Terms, Accounts Receivable, and Why Manufacturers Avoid Selling Direct

February 2026 · 8 min read · Oryx Research Team
StrategyOperationsDirect-to-Retail

Ask a firearms manufacturer why they don't sell directly to dealers, and the first answer is usually logistics. Who's going to warehouse it? Who's going to pick and pack thousands of small orders? Those are real concerns.

But push past logistics and you'll find the reason that actually keeps most manufacturers locked into distributor-only models: they don't want to be a bank.

Selling direct to retailers means extending credit. It means managing net terms. It means tracking hundreds or thousands of invoices, chasing late payments, writing off bad debt, and staffing an accounts receivable operation that has nothing to do with their core competency of designing and manufacturing firearms.

Distributors solve this problem elegantly. The manufacturer ships product, the distributor pays, usually on predictable terms with established credit relationships. The distributor then assumes the credit risk of selling to thousands of individual dealers, each with their own payment profile, cash flow situation, and collection story.

That's genuinely valuable. And any manufacturer considering a direct channel needs to understand what they're signing up for if they try to replicate that function in-house, because the math is less forgiving than it looks.

The Real Cost of Net Terms

In B2B commerce, net terms aren't optional. They're table stakes. Dealers expect to buy on credit, typically Net 30, sometimes Net 45 or Net 60, because their own cash flow depends on selling the product before paying for it. A dealer ordering $15,000 in inventory can't float that on a credit card and wait for retail sales to cover it. They need terms.

For the manufacturer extending those terms, every invoice becomes a micro-loan. And the aggregate numbers are sobering.

Over half of all B2B invoiced sales in the United States are currently overdue, according to a 2024 Atradius report on U.S. payment practices. Not late by a day or two. Overdue past agreed terms. The same research found that only about 42% of B2B invoices are paid on time, with roughly 8% ending up as bad debt that's never collected.

A Dun & Bradstreet report from Q1 2024 put an even sharper point on it: approximately 10% of B2B credit-based sales were deemed "severely delinquent," 91 or more days past due. For a manufacturer carrying $500,000 in outstanding receivables, that's $50,000 potentially uncollectable at any given time.

The Kaplan Group's 2025 analysis of B2B payment statistics paints the operational picture: the average annual cost of managing late payments is $39,406 per company, with 10% of companies reporting over $100,000 in expenses related to late payments. Businesses spend an average of 14 hours per week on collections-related administrative tasks. That's a part-time employee whose entire job is asking people to pay invoices that were due weeks ago.

For a firearms manufacturer that currently sells through distributors, where the number of customers is measured in the low dozens and payment reliability is generally high, taking on AR for hundreds or thousands of dealer accounts is a fundamentally different operation. It's not a rounding error on their existing business. It's a new department.

Why Dealers Need Terms (and Why That's Reasonable)

Before going further, it's worth acknowledging the dealer's perspective, because net terms aren't about dealers trying to get something for free.

Firearms retail is a cash-intensive business with compressed margins. Dealers typically operate at 12-20% gross margins on firearms, and that number has been driven closer to 12% by online price competition. A dealer carrying $50,000 in inventory at any given time, which is modest for a serious retail operation, has a significant portion of their working capital tied up in product that may take weeks or months to sell.

If every manufacturer required payment on delivery, most independent dealers couldn't operate. Their business model depends on the float between receiving inventory and selling it to consumers. Net 30 terms give them a reasonable window to convert product to revenue before the bill comes due.

This is particularly acute in the firearms industry because of purchasing patterns. Dealer buying is seasonal and lumpy: heavy before hunting season, heavy before the holidays, heavy around SHOT Show when new products launch. A dealer who needs to stock up $30,000 in inventory for a seasonal push can't do that without terms, and requiring prepayment would effectively lock smaller dealers out of carrying adequate inventory.

So net terms aren't the problem. They're a necessary mechanism for a functioning retail channel. The problem is what happens when a manufacturer has to manage those terms across a large, diverse dealer base, because that's where the operational complexity explodes.

Where AR Goes Wrong

Managing accounts receivable for a handful of large, creditworthy distributors is straightforward. Managing it for hundreds of independent retailers is a fundamentally different challenge, and it breaks down in predictable ways.

Credit assessment. When a new dealer wants to open an account, someone has to evaluate their creditworthiness. In the distributor model, the distributor handles this; they've been doing it for decades and have established processes. A manufacturer going direct has to build this capability from scratch. How much credit do you extend to a two-year-old home-based FFL with limited financial history? What about a well-established range and retail operation that wants $50,000 in initial inventory? Get the credit decision wrong in either direction and you either lose a good dealer or eat a bad debt write-off.

Collection complexity. A manufacturer with 14 distributor accounts can manage collections with a spreadsheet and a phone. A manufacturer with 500 dealer accounts needs systems, processes, and personnel. Invoices need to go out on time. Payment terms need to be tracked per-account. Past-due notices need to be sent. Escalation procedures need to exist. And someone has to make the uncomfortable phone calls to dealers who are 60 days late, dealers who are also customers you want to keep.

Research from PayTrace found that 53% of mid-market B2B companies are still managing accounts receivable with spreadsheets. A Dartmouth College Tuck School of Business study found that 94% of spreadsheets contain errors. The combination of manual processes and high transaction volumes is a recipe for missed invoices, incorrect balances, and strained dealer relationships.

The small-dollar problem. In firearms wholesale, individual dealer orders might range from a few hundred dollars to tens of thousands. The cost of managing AR is relatively fixed per invoice: sending it, tracking it, following up on it. When the invoice is for $50,000, the collection effort is easily justified. When it's for $800, the administrative cost of chasing a late payment can approach the profit margin on the sale itself.

Manual invoice processing costs approximately $22.75 per invoice versus $2-4 for automated processing, according to industry benchmarks cited in the Kaplan Group's research. For a manufacturer processing thousands of small dealer orders, the per-invoice cost of manual AR management becomes a meaningful drag on margins.

Bad debt exposure. Every new dealer account is a credit risk. In the firearms industry, where dealer turnover is real and home-based FFLs may have limited financial cushions, the risk of non-payment isn't theoretical. The industry has seen distributor-level bankruptcies (AcuSport and Ellett Brothers both went under in 2018-2019), and dealer-level defaults are more common and less visible.

With 9% of B2B credit sales ending in bad debt nationally, a manufacturer with $5 million in direct dealer receivables could expect $450,000 in write-offs annually. That's margin that was earned on the manufacturing floor and lost in the finance office.

What Distributors Actually Provide Here

This is the part of the distributor value proposition that's hardest to replicate and easiest to underestimate.

When a manufacturer sells through a distributor, the distributor absorbs the entire credit risk of the dealer base. The manufacturer's customer is the distributor, a known, creditworthy entity that pays on established terms. The complexity of evaluating, extending, and collecting on dealer credit sits entirely with the distributor.

For a manufacturer considering direct sales, this is the honest calculation: you recover margin by eliminating the distributor's cut (typically 27-33% of retail), but you take on the cost and risk of AR management. If you do it well, the net is significantly positive. If you do it poorly, you've traded a known cost (distributor margin) for an unknown one (bad debt, administrative overhead, and the opportunity cost of management attention diverted to collections).

This is exactly why most manufacturers who've considered going direct have decided not to. The margin math works on paper, but the operational reality of becoming a lending institution (because that's what extending net terms is) scares them back to the distributor model.

Best Practices If You're Going to Do It

For manufacturers who are building or considering a direct dealer channel, managing AR well isn't optional; it's the difference between a profitable direct business and one that hemorrhages cash. The following practices aren't theoretical; they're drawn from what works in B2B commerce across industries.

Tiered credit based on relationship and history. Don't extend Net 30 to every new account. Start new dealers on prepay or credit card terms, and graduate them to net terms after they've established a payment track record. This is standard practice in B2B and dealers understand it; it's how distributors handle new accounts too. Reserve your most generous terms (Net 45+) for established, high-volume accounts with proven payment history.

Automate everything possible. Automated invoicing, payment reminders, and reconciliation reduce the per-invoice cost from $22+ to under $4 and dramatically reduce errors. More importantly, they make collections systematic rather than ad hoc. A dealer who receives a professional automated reminder at 7 days, 14 days, and 30 days past due is far more likely to pay than one who gets a phone call at 45 days when someone finally notices.

Research from PYMNTS.com found that 62% of firms implementing AR automation saw measurable reductions in their Days Sales Outstanding. Automation isn't about replacing human judgment in credit decisions; it's about eliminating the manual busywork that makes AR management so expensive at scale.

Offer early payment incentives. The standard 2/10 Net 30 (a 2% discount for payment within 10 days) works because it aligns incentives. The dealer gets a meaningful discount. The manufacturer gets cash faster and avoids the collection risk. On a $10,000 order, the $200 discount is substantially cheaper than the cost of chasing a 45-day-late payment.

Separate the credit function from the relationship. The person managing a dealer relationship should not be the same person calling about overdue invoices. Mixing sales and collections in the same role damages both functions. Either build a dedicated AR function or, more realistically for most manufacturers, use infrastructure that handles credit assessment, invoicing, and collections independently from the sales relationship.

Know your cutoff points. Define in advance what happens at 30, 60, and 90 days past due. Automatic order holds? Reduced credit limits? Account suspension? Having these policies documented and applied consistently is far easier than making case-by-case decisions when a dealer who owes you $12,000 wants to place a new $8,000 order.

The Infrastructure Question

The reason most manufacturers haven't built direct dealer programs isn't that they don't understand the margin opportunity. It's that the AR burden (credit assessment, invoicing, collections, bad debt management) represents an operational capability they don't have and don't particularly want to build.

This is where the landscape is changing. Purpose-built B2B transaction infrastructure can handle the financial complexity of direct manufacturer-to-retailer commerce (payment processing, credit management, invoicing, and settlement) so that the manufacturer focuses on product and relationships rather than becoming a de facto bank.

The model works the same way payment infrastructure works in every other industry: the platform assumes or manages the credit risk, handles the transaction mechanics, and settles with the manufacturer on predictable terms. The manufacturer gets the margin benefit of selling direct without building an AR department from scratch.

It's not free. Platform fees exist for a reason. But the math is straightforward: if the distributor takes 27-33% of retail and a transaction platform takes a fraction of that, the manufacturer nets significantly more per unit while avoiding the operational burden that's kept them locked into distributor-only models for decades.

The manufacturers who figure this out won't just capture more margin. They'll have the operational capacity to build direct dealer relationships at scale, something that's been economically impractical for most of the industry's history.

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