eCommerce

Ultimate Guide to Supplier Payment Terms Optimization

Want better cash flow and stronger supplier relationships? Optimizing supplier payment terms is the key. Here's what you'll learn:

Common Payment Terms: Net 30, 2/10 Net 30, COD, CIA, and more.
Why It Matters: Manage cash flow, reduce costs, and improve supplier trust.
How to Negotiate: Use data, time requests strategically, and make clear asks.
Tools to Simplify: Accounting software, payment automation, and AI analysis.
Funding Options: Explore solutions like revenue-based financing if needed.

Quick Example: Switching from Net 30 to Net 60 can free up $33,000 in working capital for a $100,000 inventory cost.

This guide explains how to align payment terms with your cash flow, negotiate better deals, and use tools to simplify the process.

Payment Terms Explained

Standard Payment Terms

eCommerce payment terms generally fall into specific categories, each defining payment schedules and conditions:

Term Type	Payment Window	Discount	Ideal For
Net 30/60/90	30-90 days	None	Businesses with reliable cash flow
2/10 Net 30	10-30 days	2%	Companies with available funds aiming to cut costs
CIA (Cash in Advance)	Immediate	3-5%	New partnerships or high-risk transactions
50/50 Split	Half upfront, half on delivery	Varies	Large custom or first-time bulk orders
Milestone-based	Per agreed schedule	Negotiable	Long-term manufacturing agreements

What Shapes Payment Terms

Several factors determine the payment terms suppliers may offer:

Order History and Volume
If your monthly orders exceed $50,000, you might qualify for Net 60 terms. Smaller orders, under $10,000, often require upfront payments.
Business Credit Profile
A strong D&B Paydex score (above 80) can help secure extended terms. On the other hand, lower scores (below 50) typically lead to stricter payment conditions.
Industry Standards
Payment terms can also vary by sector:
- Electronics: Commonly Net 30-45
- Textiles: Often require a 50% deposit and 50% payment before shipping
- Seasonal Products: Frequently demand full payment 60-90 days prior to delivery

These elements play a crucial role in shaping your payment agreements and their impact on your cash flow.

Cash Flow Effects

Payment terms significantly affect your working capital. Let’s break it down:

Net 30 Terms Example:

Inventory Cost: $100,000
Sales Cycle: 45 days
Cash Shortfall: 15 days
Working Capital Needed: ~$33,000

Net 60 Terms Example:

Same Inventory Cost: $100,000
Sales Cycle: 45 days
Cash Surplus: +15 days
Working Capital Savings: ~$33,000

By extending payment terms by 30 days, you could free up around $33,000 in working capital. Combining this with smart negotiation can strengthen your financial position.

Next, we’ll look at strategies to negotiate better payment terms.

How to Get Better Payment Terms

Review Current Terms

Start by analyzing your supplier agreements using a payment terms scorecard like this:

Assessment Criteria	Metrics to Track	Target Goals
Payment Windows	Days to pay	45-90 days
Early Payment Discounts	Discount % offered	2-5%
Order Requirements	Minimum order value	$5,000-25,000
Payment Methods	Available options	ACH/Wire/Credit
Late Payment Penalties	Fee structure	Under 2%

Keep track of key metrics such as your on-time payment rate, average payment days, annual supplier spend, seasonal order trends, and credit utilization. These details will help you present a strong case when requesting better terms.

Negotiation Steps

Follow these strategies to negotiate improved payment terms:

1. Build Your Case

Use reliable data to demonstrate your value as a customer. Highlight:

Growth in annual purchase volume (at least 12 months of data)
A spotless payment history
Expected increases in future orders
A strong D&B score to showcase creditworthiness

2. Time Your Request

Timing is everything. Approach suppliers during:

Contract renewal discussions
After 12+ months of consistent orders
Periods when your order volumes are increasing
Before peak seasonal buying periods

3. Make Specific Requests

Be clear and precise about what you want. Examples include:

Extending payment terms from Net 30 to Net 60
Increasing early payment discounts from 2% to 3%
Waiving order minimums after $100,000 in annual purchases

These steps can help you secure terms that better align with your cash flow needs and growth plans.

Funding Options

If negotiations don’t fully address your cash flow needs, consider alternative financing options.

Platforms like Onramp Funds offer flexible, sales-based funding. Here’s what they provide:

Funding available within 24 hours
No fixed monthly payments
Repayment tied to sales volume
Open to businesses with $3,000+ in monthly sales
Integration with platforms like Amazon, Shopify, and Walmart Marketplace

Comparing Traditional and Modern Financing

Funding Type	Processing Time	Requirements	Cost Structure
Bank Loans	2-4 weeks	2+ years in business, collateral	Fixed APR
Credit Cards	1-7 days	Personal credit score	15-25% APR
Onramp Funds	24 hours	$3,000 monthly sales	2-8% fee
Trade Credit	30-90 days	Payment history	0-5% discount

These options can complement your negotiation efforts, ensuring you maintain steady cash flow while scaling your business.

How to Negotiate Payment Terms Using Facts

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Payment Management Tools

Once you've renegotiated terms and explored financing options, modern tools can simplify payment processes and improve your financial workflows.

Accounting Software Options

Accounting platforms help you manage supplier agreements, set up payment reminders, and take advantage of early payment discounts. They often include dashboards that display key metrics like payment term distribution, savings from early discounts, on-time payment rates, and upcoming cash flow. These features make it easier to keep your operations running smoothly.

Some platforms also incorporate AI tools to provide a deeper understanding of your payment habits and supplier interactions.

AI Payment Analysis

AI-powered tools use machine learning to study your payment history and supplier relationships. They can recommend the best times to make payments, improving cash flow, and even pinpoint opportunities to secure better terms with suppliers.

Payment Automation

Payment automation tools handle scheduling based on your negotiated terms and real-time cash flow forecasts. They prioritize early payment discounts and adjust payment timing when it makes sense. These systems cut down on manual work, integrate seamlessly with your accounting software, and keep detailed audit trails to ensure compliance - all while improving efficiency.

Tips and Problem-Solving

Creating a Payment Plan

Set up a payment system by grouping suppliers based on their terms and matching your revenue cycles with payment obligations. For businesses that rely heavily on inventory, consider revenue-based financing to secure funds for inventory and repay in line with your sales.

"Onramp offered the perfect solution with revenue-based financing to secure the capital we needed to invest in inventory and pay it back at a reasonable time frame once we made sales. The process was quick, easy, and the support was great." - Jeremy, Founder and Owner of Kindfolk Yoga

A well-structured payment plan ensures you're ready to handle supplier concerns effectively.

Handling Supplier Objections

To manage supplier pushback, build on your negotiation strategy by demonstrating financial stability and a reliable payment history. Use transparent financial reports, suggest a trial period, or propose a gradual transition to new terms.

"Onramp has simplified cash flow by automating everything: easy to request, set it and forget it payments - quick and fast!" - Torrie V., Founder and Owner of Torrie's Natural

Track and Adjust

Once new terms are in place and supplier concerns are addressed, ongoing monitoring is key.

Metric	What to Track	Why It Matters
Days Payable Outstanding (DPO)	Average time to pay suppliers	Shows how efficiently working capital is managed
Early Payment Discount Usage	Percentage of discounts utilized	Highlights potential cost savings
Supplier Satisfaction	Feedback and relationship health	Maintains strong, long-term partnerships
Cash Flow Impact	Changes in weekly/monthly cash position	Confirms the effectiveness of your strategy

Review these metrics regularly and schedule quarterly meetings with suppliers to address any concerns. Leverage payment automation tools to create detailed reports on term compliance and discount usage. These insights can guide decisions on renegotiating terms or exploring financing options.

Next Steps

Take a closer look at your supplier relationships and cash flow to pinpoint any gaps in your payment terms.

Here’s a simple framework to help you refine your payment terms:

Phase	Action Items	Expected Timeline
Assessment	Review current terms and evaluate their cash flow impact	1–2 weeks
Planning	Create a negotiation plan and gather financial documents	2–3 weeks
Implementation	Begin supplier discussions and update payment systems	4–6 weeks
Optimization	Track results, tweak terms, and explore funding options	Ongoing

Once you’ve tackled the basics, consider revenue-based financing to strengthen your cash flow. For example, eCommerce businesses working with Onramp Funds have reported a 20% revenue boost within 180 days.