36.7%
Effective annual return of 2/10 net 30
Like earning 36.7% interest on cash — 7× a savings account
$1.7T
Excess working capital, US top 1000
Cash trapped in operations that could be deployed elsewhere
60–80%
Average discount capture rate
1 in 5 eligible discounts left unclaimed — free money lost
Why Payment Terms Are a Financial Instrument
01
Not administrative boilerplate. Payment terms are a financing decision — like choosing between a 2% cashback card and a 30-day float. The 2% cashback wins every time.
02
Suppliers price it back — quietly. Force suppliers to wait 30 extra days? They'll raise prices 1–3% to cover their own borrowing cost. You didn't save cash — you just moved it to a different line item.
03
Your 7% vs. their 14% borrowing cost. Your company borrows cheap. Your supplier borrows expensive. Making them finance your operations is like lending at a loss — it destroys value on both sides.
The Most Common Failure
Risk
Treating payment terms like a price negotiation — as something to extract. Demanding Net 60 the same way you'd demand a lower unit price causes suppliers to nod, agree, then quietly recover the cost somewhere else. It's like squeezing a balloon: the pressure just moves to a different spot.
What Correct Execution Looks Like
Common
Same rigid Net 60 for every supplier — procurement, treasury, and AP each optimizing for different goals. Nobody models the total cost.
1–3% hidden cost
Correct
Tailor terms by supplier importance. Pay critical suppliers early for a bigger discount. Align treasury, procurement, and AP around total cost — not just unit price.
15–25% more available cash
Jargon Decoder
EAR Effective Annual Rate — real return including compounding, like APY on a savings account.
WACC Weighted Avg Cost of Capital — what it costs a company to borrow money (like a mortgage rate for businesses).
DPO Days Payable Outstanding — how many days on average you take to pay suppliers.
Working Capital Cash available for daily operations = current assets minus current liabilities.
Sources: The Hackett Group, Taulia, Corpay, Rossum, Deloitte, RED BEAR Negotiation, Phoenix Strategy Group, Liquiditas, Ardent Partners.
Rzzro
Procurement, quantified.
