The supplier side of working capital
Your Supplier Is Giving You Free Money. Are You Using It?
Most business owners
spend a lot of energy thinking about one side of their working capital.
How to collect from
customers faster.
How to reduce overdue
receivables.
How to chase payments
without damaging relationships.
All of that is
important.
But there is another
side of working capital that most businesses do not think about carefully
enough.
The supplier side.
Supplier credit is
not just a payment term
When your supplier says
"30 days credit," he is not just telling you when to pay.
He is offering you
something valuable.
For 30 days, you have
his goods in your warehouse — or sold to your customers — while his money is
still with you.
That is free financing.
No interest. No
processing fee. No application required.
Most businesses accept
this credit, say thank you, and then proceed to pay on day 8.
That is leaving 22 days
of free money on the table.
A simple example
Let us say you purchase
goods worth ₹5,00,000 from your supplier.
He gives you 30 days to
pay.
You pay on day 10 —
simply out of habit, or because the invoice came in and you processed it.
Those 20 days you gave
back unnecessarily have a value.
If your cost of finance
is 12% per year, 20 days on ₹5 lakh works out to roughly ₹3,300.
Nobody sends you an
invoice saying:
"Early payment
cost — ₹3,300."
But economically, that
cost is real.
Multiply this across
all your suppliers, across all your purchases in a year, and the number becomes
worth paying attention to.
The three things
most businesses get wrong on the supplier side
First — paying early
without getting anything in return.
If your supplier offers
a discount for early payment, that is a different calculation. Evaluate it
carefully and decide.
But paying early simply
because the invoice arrived, or because it is end of month and you are clearing
dues — without any benefit in return — is a habit, not a strategy.
Second — not knowing
which supplier offers how many days.
Some suppliers give 15
days. Some give 45 days. Some give nothing.
If you do not track
this clearly, you will end up paying a 45-day supplier in 15 days and
stretching a 15-day supplier beyond agreed terms — which is the worst possible
outcome.
Third — treating all
purchases the same when planning cash.
A purchase from a
supplier who gives 45 days has a very different impact on your cash position
than a purchase from a supplier who expects payment in 7 days.
If you are not mapping
this clearly, your cash planning will always feel approximate.
Now the other side —
what happens when you stretch too far
Everything above is
about using supplier credit intelligently.
But there is a line.
And crossing it has
consequences that most business owners underestimate.
When you pay beyond the
agreed terms without communicating, something changes.
Your supplier does not
send you a complaint letter.
He does not call a
meeting.
He simply adjusts —
quietly, and over time.
Your orders start
getting processed a little slower.
When material is in
short supply, your name is not the first one he calls.
When you need an urgent
delivery to meet a customer deadline, there is suddenly "some
difficulty."
Your credit limit stops
increasing even as your business grows.
And when a price
revision is coming, you are not the one he warns in advance so you can stock
up.
None of these have an
invoice attached to them.
But every one of them
has a cost.
What the supplier is
actually thinking
Put yourself in his
position for a moment.
He has a business to
run too.
He has his own
suppliers to pay, his own employees to manage, his own cash flow to maintain.
When he gives you 30
days credit, he is financing your business for those 30 days.
He does this because he
values the relationship and wants your continued business.
When you pay on time,
consistently, he sees a reliable partner.
When you pay late —
especially without saying anything — he sees a customer who either cannot
manage his money or does not consider him important enough to prioritise.
Both interpretations
lead to the same result.
The relationship
quietly weakens.
The conversation
nobody has
Here is something that
happens in almost every business at some point.
A genuinely difficult
month comes.
Cash is tight.
Some supplier payments
are going to be delayed.
The business owner
knows this. But instead of picking up the phone, he just lets the due date
pass.
The supplier waits.
Then calls. Then gets a vague answer.
This is the worst way
to handle it.
Most suppliers are
reasonable people.
If you call in advance
and say — "This month has been difficult. Can I have 15 more days? I
will clear everything by the 20th." — a supplier who trusts you will
almost always accommodate.
He can plan around it.
What he cannot plan
around is silence.
It is not always the
delay that damages the relationship. It is the lack of communication.
The supplier who
trusts you is a business asset
Think about what a good
supplier relationship actually gives you over time.
He stocks material
anticipating your order, so you never have to wait.
He stretches credit
informally when you genuinely need it, without you having to beg.
He tells you when a
price increase is coming so you can plan your purchases.
He gives your order
priority when supply is tight and he has to choose which customer to fulfil
first.
He flags quality issues
before the material reaches you, because he cares about the relationship.
None of this is in any
contract.
It is the result of
years of honest, consistent dealing.
That goodwill is a
business asset — one that your competitors cannot buy overnight.
A new competitor may
offer your supplier more volume.
But they cannot offer
five years of trust on day one.
That is your advantage.
And it is worth protecting.
The compounding
effect works both ways
Supplier relationships
compound like interest.
A business that has
dealt honestly with its vendors for five years has preferential treatment,
informal flexibility, market intelligence, and goodwill that money cannot
simply buy.
A business that has
stretched and delayed for five years has burned that compounding in the other
direction.
The supplier still
accepts the orders.
Business still happens.
But the warmth is gone.
The goodwill is gone. And in a difficult moment — when you need that supplier
to go the extra mile — you will feel the difference.
Putting it all
together — the working capital picture
In the earlier post, we
talked about how profit is not cash.
We talked about how
money gets stuck between purchase, inventory, sale, and collection.
The supplier side of
this picture is the one lever that works in your favour.
Receivables are money
sitting with your customers.
Inventory is money
sitting in your warehouse.
Payables are money
you still owe your supplier — and until you pay, that money is available to
your business.
A business that
collects from customers in 45 days but pays suppliers in 20 days is funding a
25-day gap with its own money.
A business that
collects in 45 days and pays in 45 days has a much more comfortable position.
The goal is not to
delay suppliers unfairly.
The goal is to use
the credit you have been given, use it fully, and pay on the last agreed day —
not before, not after.
A few questions
worth thinking about
How many days does each
of your major suppliers give you?
Are you actually using
those days, or paying early out of habit?
Do you know your
average payable days — and how that compares to your average receivable days?
If cash gets tight next
month, which suppliers would you call — and what is your relationship with them
like today?
How BRS ERP helps
you manage the supplier side
Tracking all of this
manually is difficult.
BRS ERP gives you a
clear view of your supplier outstanding — what is due, what is overdue, and
what is coming up in the next 7, 15, or 30 days.
You can see:
- Supplier-wise outstanding and due dates
- Ageing of payables — what is current, what
is overdue
- Payment history with each supplier
- Purchase history and supplier-wise volumes
- Credit terms by supplier
Instead of paying
suppliers reactively — whoever called last or whichever invoice you found first
— you can plan your payments deliberately.
Pay on the right day.
Protect every
relationship.
And keep your cash
working for your business as long as you legitimately can.
One thought to carry
forward
The next time a
supplier payment comes due, do not just ask:
"Do we have
money to pay?"
Also ask:
"Is today the
right day to pay — and are we protecting this relationship the way it
deserves?"
Because a supplier who
trusts you is not just a vendor.
He is part of what
keeps your business running smoothly — especially on the days when nothing else
does.
BRS Software
Better information. Better decisions. Better business.
Infographic
In English: https://youtu.be/lZMhRGIIazQ
In Hindi: https://youtu.be/xrXssiNLdls
In Marathi: https://youtu.be/CKkcnuroYgg
Audio
Debate: https://open.spotify.com/episode/3hwphAZhxfy0fSHIi5ZuSb?si=Dxmb13wvSA6p4lBp7uZ2oQ
बहस: https://open.spotify.com/episode/0P3gGSVTMFjMZQXOit8Sjs?si=9PaURFWlSSOQRAONTCWiHg
वादविवाद: https://open.spotify.com/episode/4rDHkBACAtw9bAEz8En78Z?si=s_pgS4nQRXidbYi9jrl9uA
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