Should you sell diesel on credit?

Every figure below is hypothetical. The pattern is not.

A factory that has bought from you for two years asks for 30-day terms. They are reliable. They are polite about it. They will probably go elsewhere if you say no.

Most suppliers treat this as a relationship question. It is an arithmetic question, and the arithmetic is not close.

Credit is a loan you are making at zero percent

When you give a customer 30 days, you are lending them the value of a month's supply, unsecured, at no interest, for as long as the relationship lasts. Not once — permanently. As soon as one invoice is paid another has taken its place, so there is always roughly a month's sales sitting outside your business.

That money is not idle. It is money you could have used to buy the next truck.

What 30 days actually costs

Say this customer takes 20,000 litres a month at ₦1,300, and your margin is ₦65 a litre — five percent, which is a realistic sort of number in this trade.

Now put a price on that tied-up cash. If your own money costs 30% a year — a rough figure for commercial borrowing in Nigeria, and you should substitute your real one — then:

₦26,000,000 × 30% = ₦7,800,000 a year
₦7,800,000 ÷ 12    = ₦650,000 a month

Your margin on this customer is ₦1,300,000 a month. Financing them costs ₦650,000 a month.

You are keeping half.

And if they drift to 60 days — which is what actually happens, because terms are a floor and not a ceiling — the tied-up cash doubles to ₦52,000,000, the financing cost becomes ₦1,300,000 a month, and you are working that account for nothing at all.

That is the whole calculation. It takes two minutes and almost nobody does it before saying yes.

So the answer is not "no"

Refusing credit outright is how you become a supplier that only serves people with cash, which in this market is a small and shrinking business. The answer is that credit is a product, and products are priced.

Three ways to do that, in order of how easy they are to actually enforce:

Price it in. A cash price and a terms price, published, with the difference roughly covering your financing cost. On the numbers above, 30-day terms cost you ₦32.50 a litre — half your margin. Charging ₦25 to ₦30 more per litre on terms is not sharp practice; it is you not working for free.

Cap it. A credit limit is a number, agreed in advance, that supply stops at. The limit is not an insult and it is not personal — it is the amount of your business you are willing to have parked with one customer. Without a limit, your exposure is set by whoever is most persistent.

Shorten it. Seven or fourteen days costs a quarter or a half of what thirty does, and for many buyers the request is really about their own internal payment run rather than a genuine need for a month.

The part specific to doing this in Nigeria

There is no usable credit file for most SME buyers here. You cannot look anybody up. Which means your own payment history is the credit bureau — and it only works if you have actually been recording it.

That changes what you need to keep. Not just "who owes me" but:

• Days to pay, per customer, per invoice, over time. An average is nearly useless; the trend is everything. A customer who paid in 20 days all last year and 45 days for the last three months is telling you something well before they default.
• The limit, and the current exposure against it. Available on demand, not reconstructed at month end. The question "can we load this truck?" needs an answer in the thirty seconds before the truck loads.
• Every promise, dated. "They said Friday" is worth nothing next month. "They said Friday on the 3rd, then Friday on the 10th, then Friday on the 17th" is a decision.

When to stop supplying

Decide this while you are calm, because you will not decide it well while a truck is waiting and a customer is on the phone.

Write down the rule — over the limit, or more than X days past terms, and supply pauses until it clears — and tell customers what it is when you open the account. A rule stated in advance is a policy. The identical decision made in the moment is a personal insult, and it costs you the relationship you were trying to protect.

The suppliers who get destroyed by receivables are almost never the ones who were too strict. They are the ones who never had a rule, extended a little more each time because each individual extension seemed reasonable, and discovered the size of the problem only when they could not pay for their own next delivery.

The real question underneath

Once you can price credit, you can ask the better question: not "should I give this customer terms?" but "is this customer worth the cash they consume?"

A large customer on long terms and a thin margin can be worth less than a small one paying on delivery — genuinely less, not just less per naira of revenue. That is worked through in which of your customers is actually profitable, and it is the calculation that most often changes how an owner runs their book.