One of the biggest myths I see in business is that good working capital management means stretching your suppliers as far as humanly possible. Paying later, pushing boundaries, and slowly damaging trust. That approach might create short term cash relief, but it comes at a long-term term cost that most businesses never properly measure.
Those costs usually show up quietly. Pricing starts to drift up. Priority slips when stock is tight. Lead times blow out at the worst possible moment. And when the business hits pressure, whether that is labour shortages, supply chain disruption, or a sudden cash squeeze, suppliers are far less inclined to lean in and help.
The strategies I am about to walk you through are not about delaying payments and damaging relationships. They are about being deliberate, commercially smart, and disciplined with how creditors are used to strengthen your cash position and your profitability at the same time.
→ What Creditors Actually Are
→ The Opportunity Cost of Payment Timing
→ Putting a Dollar Value on Credit
→ The Financial Powerhouse Mindset
→ A Common Mistake We See
→ Discipline Is What Makes This Work
→ How CFO Dynamics Helps
→ A Final Thought on Working Capital
Creditors are the people who provide goods and services to your business on trust. They deliver a product or complete a service today, send you an invoice, and allow you to pay that invoice at a later date. Often that is 15 or 30 days, sometimes 60, depending on the agreement.
From a balance sheet perspective, creditors are a liability. From a cash flow perspective, they are a powerful lever. Used well, they free up cash inside your business without harming anyone. Used poorly, they quietly destroy relationships and eventually pricing power, supply certainty, and goodwill.
It is also worth separating creditors into two broad categories, because they behave very differently:
Before we even look at the day's creditors calculation, we need to be very clear on what good creditor management is not. It is not taking 30-day day suppliers and paying them in 45 or 60 days without agreement. It is not hiding behind process or busyness. It is definitely not copying the behaviour of large conglomerates who stretch small suppliers to 90 days and beyond.
That path leads to resentment, supply risk, and a reputation you do not want.
Let us walk through a simple example.
Say you spend $120,000 a year with a supplier. That is $10,000 a month. You have three realistic payment options:
If you pay cash on delivery, there is no working capital benefit. As soon as the supply arrives, the cash leaves your bank account. Your available cash benefit is zero.
If you pay in 30 days, you effectively retain an extra $10,000 in your business at any point in time.
If you pay in 60 days, you now have $20,000 available to you on average. Not because you are being difficult, but because you are using the agreed credit terms properly.
This is where creditors need to be viewed as part of the full cash conversion cycle. Debtors, stock, and creditors do not operate in isolation. Improving one while ignoring the others often creates the illusion of progress while pressure simply moves somewhere else.
Money inside a business always has an opportunity cost.
You can leave it in the bank earning very little. You can use it to pay down a bank facility at 4 or 5 percent. Or you can avoid carrying balances on a credit card that might be costing your 18 percent or more.
If having an extra $20,000 available allows you to avoid carrying that balance on a high interest facility, the savings are material. At an 18 percent interest rate, that is $3,600 a year.
This is also where businesses commonly fool themselves. Holding cash while simultaneously running overdrafts or credit cards elsewhere in the business is not conservative. It is expensive. Opportunity cost must always be assessed across the whole business, not account by account. And this logic scales!
Whether you spend $120,000 a year with a supplier or $1.2 million, the mathematics remain the same. Credit terms, when honoured properly, have real and measurable value.
Most businesses stop at holding onto cash for longer. A financial powerhouse looks further.
Instead of asking how late can we pay, they ask how can we use our strength to create better commercial outcomes?
Returning to our $120,000 supplier example, imagine negotiating a 5 percent prompt payment discount in exchange for paying cash on delivery or immediately at month end.
That single chance creates:
That $6000 goes straight to your bottom line. No additional sales effort. No extra staff. No increased overhead.
These conversations do not need to be aggressive. The strongest framing is simple and commercial. We value the relationship. We are reliable.
If early payment improves your cash flow, what does that look like for pricing. Suppliers understand this language far better than most business owners expect.
One of the most common mistakes we see is businesses trying to improve working capital in isolation.
Typically, it looks like this:
On paper, creditor days improve. In reality, the business is slowly choking itself.
Improving creditors without discipline elsewhere does not fix working capital. It masks it.
This is where theory becomes practice.
Prompt payment strategies only work if your cash flow forecasting is strong, your reporting is timely, and your financial discipline is high. You need to know when cash is coming in, what commitments are due, and whether your business can sustain earlier payments without creating stress elsewhere.
Businesses that execute this well have clear payment rules, regular creditor reviews, and visibility over their forward cash position. Not as bureaucracy, but as control.
When that discipline exists, businesses can selectively choose where to extend credit and where to shorten it. They can use longer terms with suppliers where cash flexibility matters most and negotiate discounts with suppliers where volume and reliability gives them leverage.
Over time, this turns your business into a preferred client. The supplier who gets paid on time, or early. The one they prioritise when stock is tight. The one they are happy to sharpen pricing for.
That is what financial strength really looks like.
At CFO Dynamics, we help business owners move beyond surface level working capital metrics and into deliberate strategic decision making.
Our work typically involves:
In practice, this often results in reduced cash stress, clearer supplier conversations, and profitability improvements that fall straight to the bottom line.
The goal is not to pay everyone later. The goal is to make smarter decisions that improve cash flow, profitability, and reputation at the same time.
When your suppliers trust you, your numbers improve, and your business starts to behave like a financial powerhouse.
That is where working capital stops being a survival tool and starts becoming a competitive advantage.
Even though creditors are only one part of the working capital puzzle, it is one of the most controllable. This concept sits inside a much broader framework around cash creation and working capital improvement.
We are building something deeper around this in the background. If this topic resonates with you, and you want to go further, reach out.
Sometimes the fastest way to improve cash is not to add more.
It is to simplify what you already have.
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