Are your supplier payment terms costing you money?

Supplier payment terms are negotiable, and almost nobody asks for them. Terms stay silent for years, because nothing hurts while the bank balance holds — and then a big order lands, or a customer pays late, and the terms you never negotiated are suddenly the reason you cannot buy stock.

What do your suppliers actually mean by their terms?

Every supplier states terms somewhere, usually small print on a quote, an invoice, a price list or a first-order email. The wording matters more than the number, because the same number of days counted from a different starting point is a different deal.

Read the terms off three real documents, not off your memory: your last invoice from that supplier, their current price list, and any written quote they gave you. If the three disagree, the invoice is the one that binds you.

Why does buying just in time cost more than it looks?

"Just in time" sounds free. It is not, because stock that is not on the shelf is not costing nothing — it is costing whatever a stockout costs you, which you have never written down.

A stockout costs three separate things, and only the first one feels real:

• Lost margin, permanently. A customer who cannot get the part today buys it from someone who has it. You have the sale and the cost of the goods, but not the labour that carried the margin.
• A worse price next time. An emergency buy is a courier, a cash purchase, no discount, and often a different product that does not fit.
• Rushed work that damages the rest of the job. Substitutions and late deliveries are where the expensive mistakes happen.

Holding stock has costs too — capital tied up, insurance, storage, shrinkage, and stock that goes obsolete when a supplier changes a fitting. The answer is not zero stock. It is a reorder point, a target range per fast-moving line, and a written reason for why those numbers are what they are.

If you want the size of the stockout problem, you can compute it from records you already keep:

annual cost of stockouts = (stockouts in the last 12 months) x (average value of the orders you could not fill) x (your gross margin as a decimal)

That number is the ceiling on how much holding stock can be saving you.

When is longer trade credit actually worth having?

Longer terms are free money in one specific condition: the supplier's price does not rise to compensate. Suppliers do sometimes quietly reprice, and the new price list shows up after the new terms are in place. So check the price at the same time as the terms, every time.

The comparison you need is not supplier against supplier. It is longer terms against the cost of funding the gap yourself:

Two rules keep trade credit useful rather than dangerous:

1. Only take longer terms on a purchase if you already know where the money to pay on the new due date will come from. Not hoped for. Known.
2. Take longer terms from your biggest and most reliable suppliers first. A small irregular supplier going quiet on COD hurts more than it looks.

How do you work out whether an early-payment discount is worth taking?

Suppliers present a discount as a small kindness. It is a rate of interest, and a steep one. Do the arithmetic with your own numbers:

annual cost of not taking the discount = (discount % ÷ (1 - discount %)) × (365 ÷ (full terms in days - discount days)) × 100

Run it on a round figure so you can see the shape. On R 100 000 of stock, 2% off if you pay within 10 days and full price by day 30:

2 ÷ 98 = 0.0204
365 ÷ (30 - 10) = 18.25 cycles a year
0.0204 x 18.25 = 37% a year

So paying on day 30 to collect a 2% discount is costing you roughly a third of the value of the stock per year. Compare that against your overdraft rate and the answer is usually obvious.

Three cases where the discount is not worth taking:

• You would fund the early payment with a credit card or a bridging loan. You are buying the discount with expensive debt.
• The stock is bought for one job, and that job's invoice has not gone out yet.
• The discount is offered by a supplier you barely buy from, as an inducement. That is a price rise on everything else.

And one case where it usually is worth taking: fast-moving stock you have already decided to hold, funded from operating cash you genuinely have spare.

How do you ask for 45 or 60 days without sounding desperate?

Timing and framing do most of the work. Ask in writing, early in the relationship, at a moment that is about planning rather than trouble.

Ask when: the price list is being reissued, the annual spend is being reviewed, you are consolidating suppliers, or you are placing a larger order than usual. Do not ask in the same message as a late payment, and do not ask late on a Friday afternoon.

The script that works is short, specific and gives them something:

Subject: Payment terms — [your company name], account [account number]

Hi [name]

We are reviewing our payment terms for the coming year and wanted to raise it with you
rather than leave it.

We currently settle within [your current terms — e.g. 30 days from statement], and our
proposal is [45/60] days from statement, once per week by EFT on a fixed day. We will
consolidate to a single invoice per site where we can, and we will send the order and
the drawing together so you are not asked for information twice.

We are asking because we want to hold a little more stock with you rather than less,
and because predictable terms let us plan properly on our side.

If 60 is not workable, 45 from statement would still help, and I am happy to keep it
to one payment run a week so your finance team is not chasing anything.

Regards
[name]
[company]

What that message does: it is dated early in the relationship, it commits to something that helps them, it offers a fallback so a no is easy, and it gives a reason that is about your stock rather than your distress.

Should your payables line up with your receivables?

Yes, as closely as you can manage. If your customers take you 45 days to pay, you do not need a supplier on cash on delivery — you need one on 45 days or better. A supplier who funds you while your customer funds you is the cheapest arrangement in the business.

Work out both sides from your own records before you negotiate anything:

days you are given by suppliers = average of (payment date - supplier invoice date)
days your customers take you = average of (payment date - your invoice date)
net supplier float = days you are given by suppliers - days you are actually taken

A positive number means your suppliers are funding you. A negative number means you are funding them, and you should either renegotiate the terms or shorten how long you hold their stock.

What should a supplier payment calendar look like?

One payment run a week, on the same day every week, sorted by due date. Payment by reaction — whoever phones first gets paid — is how a cash flow problem gets confused with a supplier problem.

The order of payment matters more than the order of urgency. Pay on the due date, not before it. Early payment gives away free float for nothing, unless a discount applies.

What do you do when a supplier tightens the terms on you?

First, work out why, because the two reasons need opposite responses.

If it is you: they have seen late payments, a returned order, or a dispute. Fix the cause, accept the shorter terms temporarily, and pay early once or twice to rebuild the record. Then ask again.

If it is them: their own funding has tightened, or the whole industry has tightened. Nothing you did caused it, and negotiating harder will not help.

What to do next, in order:

1. Do not fix a terms problem with cash you do not have. Renegotiate the amount or the date, never bridge it with money you need for stock.
2. Consolidate: move more of your spend to the suppliers who will still carry you, and open a second source for anything only one supplier sells.
3. Ask for a payment plan on the existing balance rather than a lump sum. "What can I pay, and on what date, every month, without failing" is an answer a supplier can work with.
4. Reduce the exposure: buy less, less often, from the tightened supplier, and hold a small buffer against their lead time.
5. Say it in writing, with a date you will keep.

Is this a supplier problem or a cash flow problem?

The same symptom — you cannot pay a bill on time — has two completely different causes, and the wrong one wastes a month.

Work out which one it is before you pick up the phone. The supplier conversation and the cash flow conversation sound identical and produce completely different actions.

Where do you start this week?

1. Put every supplier on one page with their terms in writing, exactly as worded.
2. Work out the total float you currently have from suppliers. Most owners cannot answer this.
3. Sort it into three groups: tightened, fine, and negotiable.
4. Pick your three biggest suppliers by spend and send them the terms request this week.
5. Put the weekly payment run in the diary before you finish the week, on a day you can protect.

The companion checklist walks through building your terms register and spotting the negotiable suppliers. The templates include the terms request script, a supplier register, a weekly payment calendar, and the early-payment discount calculator.

Not sure where to start? Book a free 30-minute strategy session and we will name the one gap worth fixing first: https://agentcy.co.za/#book-audit