Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How to Use Receivables Aging to Negotiate Better Supplier Terms
Transcript
- Lucas: You walk into a meeting with a supplier who you've been buying from for three years. You want better terms — maybe net sixty instead of net thirty, maybe a two percent discount for paying early. And you're nervous because you think the supplier holds all the cards. Luna: Right, because they can just say no. Or raise prices. Lucas: Exactly. But here's the thing — you have a card you might not realize you're holding. Your receivables aging report. That document that shows who owes you money and how late they are — it's not just a tool for chasing customers. It's leverage. Luna: How? The supplier doesn't care about my customers' payment habits. Lucas: They should. Because your cash conversion cycle is their risk. If your customers are paying you in sixty-five days on average, but you're paying your supplier in thirty, you're financing your own customers at the supplier's expense. That's not sustainable, and a savvy supplier knows it. Luna: So you're saying I should show them my aging report? That feels a bit transparent. Lucas: Selectively transparent. You don't hand over the whole spreadsheet. But you can say something like, 'Our average collection period has crept up to fifty-eight days this year. To maintain healthy inventory levels with you, we'd need to align our payment terms a bit closer to that cycle. Could we look at net forty-five?' Luna: And they'd actually go for that? Seems like they'd just say 'not our problem'. Lucas: Some will. But many won't, especially if you're a reliable buyer. I spoke with a small bakery supplier in Ohio last month. They had a mid-sized customer — a regional grocery chain — who was consistently paying them in fifty days. The supplier's own terms were net thirty. So every month, they were essentially lending that chain twenty days of working capital. Luna: That's exactly the dynamic we're talking about. Lucas: Right. So that bakery supplier sat down with their key ingredient vendor — a flour mill — and said, 'Look, our largest customer is stretching us. We want to keep buying from you at volume, but we need net forty-five instead of net thirty to smooth out our cash flow.' They brought their aging report — anonymized — showing that 40 percent of their receivables were beyond thirty days. Luna: And the mill agreed? Lucas: They did. But not just because they felt sympathetic. The mill did the math. Losing that bakery's business would mean a bigger hit to their revenue than extending terms by fifteen days. The bakery was a top-ten customer. So the mill said yes, with one condition: the bakery had to set up automatic payments so the mill could predict exactly when the money would arrive. Luna: So it was a trade. Longer terms in exchange for predictability. That's smart. Lucas: Exactly. And that's the core insight. Your aging report is a story about your cash cycle. A good supplier would rather extend terms a bit than lose a customer or deal with a sudden order decline because you ran out of cash. Luna: But what if you don't have a great aging report? What if your own customers are paying you on time, or you're in a net-thirty business? Lucas: Then you have less leverage from that angle. But you might have leverage from volume or growth. The point is that a bad aging report isn't necessarily a weakness — it's data you can use to make a case. I've seen companies with terrible receivables — sixty percent overdue — actually get better terms because they were honest about the bottleneck and proposed a solution that reduced risk for the supplier. Luna: Like what? Lucas: One example: a distributor of industrial parts had a problem where their biggest customer — a manufacturer — was routinely paying at seventy days. The distributor's own supplier was a large chemical company that demanded net thirty. The distributor couldn't change the manufacturer's behavior quickly. So they went to the chemical supplier and said, 'We want to place a larger quarterly order, but we need net sixty. To offset your risk, we'll put the first two orders on a letter of credit.' Luna: So they used a bank instrument to guarantee payment. Lucas: Right. The supplier's risk went to zero — the bank was on the hook. And the distributor got the terms they needed to match their cash cycle. That's creative negotiation built on understanding your own receivables data. Luna: I can see how that works for a big distributor, but what about a solo freelancer or a micro-business? Lucas: Same principle. If you're a freelance designer and your biggest client pays in sixty days, you can go to your software vendor or your co-working space and say, 'I want to keep my membership at the premium level, but my cash flow is back-loaded. Can we switch to a quarterly payment plan?' Many will say yes because they'd rather keep you as a customer than lose you to a cheaper option. Luna: So the key is framing it as a partnership problem, not a sob story. Lucas: Exactly. You're not asking for a favor. You're proposing an arrangement that keeps the relationship healthy. And the data from your receivables aging gives you a factual basis for the request. Luna: Let's talk about what not to do. Any common mistakes? Lucas: The biggest one is leading with blame. If you walk in and say, 'My customers are deadbeats, so I need more time,' the supplier hears, 'This business has bad credit management.' That undermines trust. Instead, frame it as a structural issue in your industry or market segment. Luna: So say 'our segment averages sixty-day payments' rather than 'my clients are slow'. Lucas: Yes. Another mistake is asking for terms you don't actually need. If you ask for net sixty but your real average collection period is forty-five, you might get it, but you're signaling that you're less disciplined than you are. That can backfire later if you need a real favor. Luna: Better to ask for exactly what matches your cycle, or maybe a little buffer. Lucas: Exactly. And a third mistake is not having a fallback. If the supplier says no to net sixty, maybe they'll say yes to a volume discount that effectively lowers your cost of goods, which also helps cash flow. Or maybe they'll agree to split payments — half at thirty days, half at sixty. Luna: So you go in with a menu of options. Lucas: Right. And here's a subtle one: don't negotiate terms when you're already behind on payments. That's a power position you don't have. Do it when you're current and have a track record of paying on time under your existing terms. Luna: That makes sense. You want to be seen as a good customer, not a struggling one. Lucas: Exactly. And one last thing — if you're a regular listener of this show, you know we talk a lot about practical tools. This is one of those episodes where the tool is literally a piece of paper you already have. Your aging report. Luna: Which brings up something I've been thinking about. We put out a lot of these episodes — over thirty now on cash flow alone. And I know it takes a ton of research and editing to make each one concrete. Lucas: It does. And we love doing it. But the honest truth is, this show stays ad-free because a small group of listeners chips in through buy me a coffee dot com slash fexingo. That's what funds the research time, the editing, the hosting — all of it. Luna: Yeah. And we don't put that behind a paywall or run ads because we want these conversations to be useful to anyone who needs them. So if you've gotten even one practical idea from an episode — like using your aging report to negotiate — and you're in a position to throw a few dollars toward keeping it going, that makes a real difference. Lucas: Alright. Back to the nuts and bolts. Let's talk about the actual script. What do you say when you sit down with that supplier? Luna: I want to hear a model conversation. Lucas: Okay. You start with context, not ask. 'We've been working together for two years now, and your product has been a key part of our growth. I want to make sure we can continue ordering at this volume — maybe even increase it. To do that, I need to align our payment terms a bit better with our cash cycle.' Luna: That sets a collaborative tone. Lucas: Then you present the data. 'Our average collection period from our customers is currently fifty-five days. That's up from forty-two last year, mostly because our largest client moved to a net-sixty policy. If we could shift from net thirty to net forty-five, it would smooth out our working capital and allow us to keep ordering at the same pace.' Luna: So you're not asking for sympathy. You're giving a reason tied to their interest. Lucas: Exactly. And then you pause. Let them respond. They might say, 'We typically don't go beyond net thirty.' Then you say, 'I understand. Would you consider a trial period — say three months at net forty-five — and if it works for both of us, we can revisit?' Luna: A trial removes the risk for them. Lucas: Right. And if they still say no, you pivot. 'Could we instead look at a volume discount of two percent if we commit to a minimum quarterly order?' That's a different lever that also improves your cash position. Luna: I like that. You're not walking away empty-handed. Lucas: And you've strengthened the relationship by showing you're thoughtful about the business, not just desperate for a break. That's the kind of customer suppliers want to keep. Luna: Alright, so the homework for listeners this week: pull your aging report. Actually look at the weighted average days outstanding. Then think about which supplier relationship is most strategic — and most ready for this conversation. Lucas: And if you feel nervous, remember: the worst they can say is no. And even a no tells you something about the relationship. You might decide to find a supplier whose terms fit your cycle better. Luna: That's a great point. This isn't just negotiation — it's also a diagnostic. Lucas: Exactly. Your aging report is a mirror. Sometimes you don't like what you see. But you can't fix what you don't measure. So measure it, bring it to the table, and start the conversation.