Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How One Bakery Replaced Net-30 With Instant Payments
Transcript
- Lucas: There's a question every small business owner faces at some point, and it sounds deceptively simple: what if you just stopped offering Net-30 terms and asked to be paid right away instead? Luna: Right — and most owners I talk to assume the answer is 'you can't, your customers will leave.' Lucas: That's the reflex. But a bakery in Brooklyn called Ovenbird tested that assumption last year. Fourteen wholesale accounts — coffee shops, delis, a small hotel — and they were sitting on an average of thirty-seven thousand dollars in receivables at any given moment. The average invoice took thirty-eight days to get paid. Luna: Thirty-eight days on Net-30 terms — so basically nobody was sticking to the terms. Lucas: Exactly. And the owner, a woman named Sarah, told me that every February she'd run up her credit card to cover payroll because holiday sales had been good but nobody had paid yet. She was spending about two hundred and forty dollars a month in credit card interest just to bridge that gap. Luna: So the cost of waiting was real and measurable. How did she frame the switch? Lucas: She didn't say 'I'm canceling Net-30.' She said 'I'm giving you an option.' Any customer who paid by card at delivery — instant settlement — would get a 1.5 percent convenience fee added. Any customer who wanted to stay on Net-30 could, but the price would be 2 percent higher on every invoice. Luna: So the discount is for paying fast, not a penalty for paying slow. That's a classic framing shift. Lucas: Classic but rare in practice. Most small business owners frame it as a penalty for late payment, which feels punitive. Sarah made it a reward for speed. And she did the math first: her cost of accepting credit cards was about 2.7 percent. The 1.5 percent fee didn't cover that entirely, but it covered most of it, and the float savings more than made up the difference. Luna: What was the float savings exactly? She was getting paid in one day instead of thirty-eight — that's over a month of cash she wasn't borrowing for. Lucas: Right. She calculated that the interest she saved on not carrying a credit card balance was roughly one hundred and ninety dollars a month. Plus she eliminated the administrative time — chasing invoices, sending reminders, reconciling checks. She estimated that was another three hours a week. At her own hourly rate, that's about four hundred and fifty dollars a month in saved labor. Luna: So the 1.5 percent fee actually cost her less than the float and the labor. That's a net positive even before you consider the psychological relief. Lucas: Exactly. She was essentially paying a small fee to outsource her collection department to Visa. And her customers — well, most of them took the instant payment option. Twelve out of fourteen switched within the first month. Luna: What about the two that didn't? Did they push back? Lucas: One was a small cafe that said 'we can't do card payments on delivery, our system doesn't work that way.' So Sarah offered them ACH — same-day transfer, no fee. That worked. The other one was a hotel that insisted on Net-30 because their procurement cycle was locked. Sarah kept them on Net-30 but raised the price by 2 percent as she'd announced. The hotel didn't even notice. Luna: The hotel didn't notice a 2 percent increase? That's interesting. It suggests that for larger buyers, the invoice amount just isn't that closely scrutinized at that level. Lucas: Or that the person ordering pastries isn't the person approving invoices. The point is, Sarah didn't lose a single customer. And her cash conversion cycle — the time from paying for flour to collecting cash — dropped from forty-two days to about seven. That is a structural change in the business. Luna: Seven days. That's almost working capital nirvana for a small manufacturer. Did she have any hiccups in the first few weeks? Lucas: One hiccup: a coffee shop owner said 'I feel like you're nickel and diming me with the fee.' Sarah's response was to show him her old invoice and her new invoice side by side. The old invoice had no fee but a thirty-eight-day wait. The new one had the fee but the pastries were delivered on Tuesday and the payment cleared on Tuesday. She said 'I'm not charging you extra — I'm charging you for not being my bank.' The guy laughed and signed up for instant. Luna: That's a good line. And it gets at something I think a lot of small business owners wrestle with: the feeling that asking for faster payment is somehow rude. Sarah basically made it a business transaction, not a personal request. Lucas: She told me the hardest part was the first conversation. She had to overcome her own discomfort. But once she'd done it with two customers, the script got easier. And the data helped — she could point to the fact that 85 percent of her customers chose the instant option, which meant the policy was popular, not punitive. Luna: I love that she tracked the take rate. Most owners would just implement a policy and never check whether customers actually preferred it. She had proof. Lucas: And that proof became part of her pitch to new wholesale accounts. Now when she onboards a new customer, she says 'here's how we work: most of our partners choose instant payment with the small fee. It means we can focus on baking rather than chasing checks.' It's framed as a feature, not a term. Luna: It also changes the relationship dynamic. The customer isn't doing you a favor by paying on time — they're just choosing the option that works for them. Lucas: Exactly. And Sarah told me that her February credit card balance this year was zero. She didn't need to borrow. That alone saved her about two thousand eight hundred dollars in interest over the year — more than the total convenience fees she collected. Luna: So the arithmetic is pretty clear. But I wonder — does this only work for businesses where the invoice amount is relatively small? Sarah's average invoice was about two thousand six hundred dollars. What if you're a manufacturer billing fifty thousand dollars? Lucas: That's a fair question. At higher amounts, the fee becomes larger in absolute terms, and the customer's procurement department might have strict rules. But the principle still holds: you can offer a discount for fast payment instead of a fee. Some companies offer 2 percent 10, Net 30 — that's essentially the same idea. The key is to make the math transparent and give the customer a choice. Luna: So the Ovenbird case isn't a universal template, but it's a proof of concept: a small business can renegotiate payment norms without losing customers, as long as they do the math and communicate clearly. Lucas: And as long as they're willing to have the conversation. Which brings me to something I think is worth mentioning here. We talk about cash flow tactics on this show all the time, and we don't run ads — that's a deliberate choice. If these conversations have moved your work forward in some small way, and you want to support that choice, the link is buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep this ad-free and focused on cases like Sarah's that actually help people. Lucas: Exactly. So back to Ovenbird — the last thing I'll note is that six months in, Sarah had built up a cash reserve of about eighteen thousand dollars. That was unheard of in her previous five years of business. And she told me the biggest change wasn't the money — it was the sleep. Luna: The sleep? That's the working capital dividend nobody talks about. Lucas: Right. She said she used to lie awake on Sunday nights wondering which checks would clear on Monday. Now she knows: whatever was sold on Friday is already in her account. That's the real win. Luna: And it started with one conversation and a spreadsheet. Good reminder that cash flow fixes don't have to be complex — they just have to be done. Lucas: Exactly. That's it for this episode of Cash Flow Conversations. Next time we'll look at how a different kind of business — a service business — used retainer billing to eliminate receivables altogether. Luna: Looking forward to it. Thanks, Lucas. Lucas: Thanks, Luna.