The Cheapest Cash Flow Fix You're Not Using: Your Payment Terms

Your payment terms are a lever. Pull it, and cash shows up on your balance sheet before you sell another unit.

Most procurement teams skip this lever. They chase unit price instead, because price cuts show up in a line-item budget and payment terms don't. Payment terms sit in the gap between Procurement, AP, and Finance. Nobody owns that gap, so nobody works it.

The Cash Flow Formula

Here's the math:

(Annual Spend ÷ 365) × Days Extended = Cash Flow Impact

Move a $1M supplier from Net 30 to Net 45, and you free up $41,096 in cash. At a 12% pre-tax return, that cash is worth $4,931 every year, for as long as the terms hold. One phone call, one supplier, and the return keeps paying out long after the conversation ends.

Multiply that across your top 20 suppliers, and the number gets serious fast.

Three Levers

Extend payment days. Net 30 to Net 45. Net 45 to Net 60. Suppliers expect this ask. It rarely turns into a fight.

Fix the early-pay habit. Some companies negotiate Net 60 on paper, then pay in 10 days out of habit or bad AP policy. I found this exact problem at MGE. Fixing the process costs nothing and returns cash immediately.

Model your early-payment discounts. A term like 2/10 Net 30 looks minor. At a 12% cost of capital, that 2% discount for paying 20 days early annualizes to roughly 36%. Take it if the cash is there. Run the math before you decide either way.

Start this Week

Pull your supplier list from the ERP. Include annual spend and current terms. Sort by spend. Your top 20 suppliers hold most of the opportunity.

Meet with AP and confirm your negotiated terms match what actually gets paid. Run the formula on your top five suppliers and bring the number to your CFO.

Email your highest-spend, least-contracted suppliers first. Call within three days. Update the terms in your ERP the day they're agreed. Verbal agreements that never get entered are where this initiative quietly dies.

Log every change: the one-time cash impact and the annual return behind it. Report it the same way you report cost savings, because that's what it is.

Run the Numbers Before You Call

I built a free Cash Flow Calculator so you can first test this formula against your own supplier list. Pair it with the free Cash Flow Optimization Checklist to work through your top suppliers in order.

Want the full playbook, the phased rollout, the CFO script, and supplier email templates? That's in Mastering Payment Terms: A Step-by-Step Guide to Boost Cash Flow.

I walked a metal fabricator through this exact process. See the numbers in this case study as they work toward $1M in cash flow.

What This Looks Like For You

You already have a contract with every one of these suppliers. Changing one number on it, the payment term, moves real cash onto your side of the ledger.

Pull your supplier list today. Run the formula on your top five. Bring the number to your CFO this week. Contact us if you want help implementing these cash flow improvements.