Supplier Terms Are Free Working Capital

An $8M ARR company came to me last fall looking for a bank credit line. They needed working capital to bridge a slow Q3. Before I started making calls to lenders, I pulled their AP aging report.

There was $165,000 in outstanding invoices where vendors were offering early payment discounts. Every one of those invoices had been paid on day 30.

The discount math

Most B2B vendors offer 2/10 net 30 terms. Pay within 10 days, take 2% off. Pay on day 30, pay full price.

That 2% discount sounds small. Over a 20-day acceleration, it annualizes to roughly 36% APR equivalent. If you have cash earning 4-5%, capturing a 36% effective return is one of the clearest decisions in your business. It doesn't require much analysis.

Companies at the $5M-$20M stage often have between $50,000 and $300,000 in payables with early payment options active at any given time. Very few have a process to identify and capture them. The AP system is set to pay on the due date, so that's what happens. Not a policy decision. Not a finance decision. An administrative default with a real cost.

The extension math

Extending your own terms is a different calculation. If your vendors are on net 30 and you could negotiate net 60, you've freed 30 days of AP balance as working capital. For a company with $300,000 per month in vendor spend, that's $300,000 in cash that doesn't need to sit in your account to cover obligations.

This isn't debt. You don't pay interest on it. The liability is the invoice you already owe. Changing when you pay it doesn't create a new obligation.

Negotiating extended terms works best when you're a reliable, growing customer. The conversation lands differently when you're not in trouble. "We're standardizing our AP terms to 60 days across vendors as part of a finance operations upgrade" is a credible ask from a company that pays on time. It's not a good ask from a company behind on current invoices.

Vendor terms are negotiable before you need them to be. After the fact, the conversation is harder and the answer is usually no.

Where to start

Pull your AP aging. Sort by vendor spend. For each of your top 20 suppliers, note current terms and whether early payment discounts are offered.

For vendors with early pay discounts: this is a workflow change, not a strategic project. Set a trigger in your AP process to flag those invoices and approve early payment when cash allows. The return is immediate.

For vendors on net 30 without a clear reason for the constraint: have the terms conversation. Most will agree to net 45 or net 60 if you've been consistent. Some won't, and that's useful to know too.

Companies shopping for credit lines often already have the liquidity they need sitting in their AP policies. A credit line costs 8-12% annually. A vendor terms conversation costs an afternoon.

Run the audit before you call the bank.