Supplier payment terms and cash flow

Why supplier terms move your cash

Your creditor days — the average time you take to pay suppliers — directly affect how much cash sits in your business. Every extra day you can fairly take is a day that cash stays with you rather than the supplier. Alongside debtor days and stock, it is one of the three legs of the cash conversion cycle, and the one you have most direct influence over.

Negotiating terms fairly

Longer terms are often negotiable, especially once you are an established, reliable customer. Ask for 45 or 60 days rather than 30, or for terms that align with when you get paid by your own customers. The strongest negotiating position is a track record of paying exactly on time — suppliers extend terms to customers they trust. Approach it as a partnership, not a squeeze. See how to negotiate better supplier terms.

The danger of stretching too far

There is a hard limit. Push suppliers beyond agreed terms and you risk losing priority, price, and eventually supply itself — a supplier that switches you to pro-forma or cash-on-delivery can freeze your operations overnight. The Prompt Payment Code and rising scrutiny of large firms squeezing small suppliers mean reputation matters more than ever.

Aligning terms both ways

The ideal is to match your creditor days to your debtor days, so customer cash arrives around the time supplier payments fall due. Where you can get paid before you pay, you may even reach the enviable position of negative working capital by design. Where the two are mismatched, that mismatch is precisely the gap to fund.

Funding the mismatch

When supplier terms simply cannot stretch to match slow-paying customers, a short facility bridges the difference so you never pay a supplier late.

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.