Most working capital conversations focus on the customer side — chasing invoices, reducing DSO, collecting faster. That is important. But there is an equally powerful lever on the other side of your balance sheet that most SMEs barely touch: the terms on which you pay your own suppliers.
Days Payable Outstanding (DPO) measures how long you take to pay supplier invoices after receiving them. It is the only component of the Cash Conversion Cycle where a higher number is better — because a higher DPO means cash stays in your business longer before flowing out. Moving from Net 30 to Net 60 with a major supplier does not require new revenue, new financing, or operational changes. It is, in many ways, the most cost-free working capital improvement available to any business.
And yet it remains one of the most underused. In my experience managing accounts payable across multiple business units at Coca-Cola Europacific Partners — including driving significant DPO improvement as part of a broader working capital programme — the biggest barrier is almost never commercial. It is psychological. Business owners hesitate to have the conversation because they worry about damaging supplier relationships. This article will show you why that fear is mostly unfounded, how to structure the conversation so it benefits both parties, and what to do when a supplier says no.
"Paying a supplier 30 days later than you do today is not a favour to ask — it is a standard commercial arrangement that most suppliers expect to be negotiated."
The DPO Formula and What It Tells You
Before negotiating anything, know your starting position:
DPO = (Accounts Payable ÷ Cost of Goods Sold) × Number of DaysIf your accounts payable balance is €80,000 and your cost of goods sold over the last 90 days was €400,000, your DPO is (80,000 ÷ 400,000) × 90 = 18 days. That is extremely low — it means you are paying suppliers, on average, within 18 days of receiving their invoices. If your suppliers' standard terms are Net 30, you are paying 12 days early with no incentive to do so.
This situation — paying significantly faster than required — is more common than you might think. It happens when accounts payable processes are on autopilot, when invoices are paid on receipt out of habit, or when no one in the business has ever analysed the DPO or compared it to what the terms actually allow. The first step is simply to know your number.
What DPO Improvement Is Actually Worth
The financial impact of extending DPO is direct and calculable. The formula is: (Annual Supplier Spend ÷ 365) × Days Extended = Cash Released.
These are one-time cash releases that occur as you transition to longer terms — after which your cashflow structure is permanently improved. At €2M in annual supplier spend, extending average payment terms by 30 days is equivalent to securing a €164,000 interest-free line of credit — indefinitely, at no cost, and with no application form.
Audit Your Current Terms Before Negotiating Anything
The most common finding when I review a business's accounts payable position is that they are already paying faster than their contracts require. Before approaching a single supplier, run this analysis:
List every supplier and their contracted payment terms
Pull your supplier master list and identify the agreed terms for each: Net 15, Net 30, Net 60, and so on. If you do not have this information documented, that itself is a finding — you are operating without a clear picture of your payables obligations.
Compare contracted terms to actual payment timing
Pull your payment history for the last six months. For each supplier, calculate the average number of days between invoice receipt and payment. Compare this to their contracted terms. You will almost certainly find suppliers you are paying 10–20 days earlier than required.
Identify the quick win
For suppliers where you are paying faster than required, the fix requires no negotiation at all — simply adjust your payment run to pay on the contracted due date rather than on receipt. This alone can add 10–15 days to your DPO across the supplier base, releasing immediate cash with zero commercial risk.
Segment Your Suppliers Before You Start
Not all suppliers should be approached the same way. Before any negotiation, segment your supplier base into three groups:
High spend, replaceable suppliers
These are your highest-value targets for DPO extension. You spend significantly with them, but if the relationship were to end, you could find alternatives. Your negotiating position is strongest here — volume matters to them, and they have commercial incentive to accommodate your terms.
High spend, critical / single-source suppliers
These require more care. If you depend on a supplier for a product or service that is difficult to replace, a difficult negotiation could damage a relationship you cannot afford to lose. Approach these with a longer-term, partnership-framing mindset. Lead with the relationship, not the request.
Low spend suppliers
The cash impact of extending terms with small suppliers is limited. Focus your effort on the top 20% of suppliers by spend — they typically represent 80% of your payables volume. Do not spend negotiating time on suppliers where even a full 30-day extension releases less than €5,000.
How to Structure the Conversation
Most supplier term negotiations fail because the buyer frames the request as a favour — "we're under pressure, could you give us more time?" That framing positions you as financially stressed and the supplier as doing you a kindness. It is the worst possible dynamic.
The right framing is commercial and mutual: you are proposing a structured payment arrangement that gives the supplier certainty of payment and gives you predictability in cash management. Here is how to approach it:
Lead with your track record
Your strongest argument is a clean payment history. If you have paid this supplier on time, every time, for 12–24 months, lead with that. "We have been a consistent, reliable customer for X years and have never missed a payment. We would like to formalise our payment terms at Net 60 to better align with our business cycles." A supplier who has never had to chase you for payment is far more likely to agree than one who has.
Offer something in return
Extended terms feel more balanced if you offer something in exchange. This could be a longer purchase commitment ("we'd like to commit to a 12-month contract"), a volume guarantee, more predictable order scheduling, or simply the explicit confirmation that you will pay reliably on the extended due date every time — which has real value to a supplier trying to manage their own cash flow.
Be specific and in writing
Do not ask vaguely for "more flexibility on payment." Name the specific terms you want: "We would like to move our payment terms from Net 30 to Net 60 effective from [date]." Then follow up in writing. Verbal agreements on payment terms are a source of disputes down the line — for both parties.
Start with a smaller ask if needed
If moving from Net 30 to Net 60 in one step feels too large for a relationship to bear, propose Net 45 first. Once that is established and the supplier sees the arrangement working reliably, you can revisit and extend further. Getting 15 extra days is better than getting nothing because you asked for 30 and created friction.
The Early Payment Discount Decision
Many suppliers offer early payment discounts — typically structured as "2/10 Net 30," meaning a 2% discount if you pay within 10 days instead of 30. These can look attractive, but the right decision depends entirely on the numbers.
A 2% discount for paying 20 days early represents an annualised return of approximately 36%. If your business earns less than 36% annually on its cash (which almost every business does), taking the discount is the mathematically correct decision — you are effectively borrowing money from the supplier at 36% annualised if you do not take it.
⚠️ The common mistake: Many businesses decline early payment discounts as a blanket policy to "preserve cash" — without ever calculating whether the discount rate is worth taking. Run the maths for each supplier individually. A 1% discount for 10 days early = ~36% annualised. A 0.5% discount for 30 days early = ~6% annualised. Very different decisions.
The practical approach: take early payment discounts from suppliers where the annualised rate exceeds your cost of capital or your alternative return on that cash. Decline them from suppliers where it does not — and instead focus on extending terms rather than accelerating payment.
When a Supplier Says No
Not every negotiation will succeed, and that is fine. Here is how to handle the most common objections:
"Our standard terms are Net 30 and we can't change them"
Standard terms exist precisely because they are standard — and exceptions are made routinely for the right customers. Ask whether there is a review process for established customers, or propose a 90-day trial of extended terms to demonstrate reliability. Most "we can't change them" positions are opening stances, not absolute limits.
"We need the cash flow from your payments"
This is the most legitimate objection and deserves a genuine response. If a supplier is a smaller business genuinely dependent on your timely payments, consider whether supply chain finance or dynamic discounting could work — structures where a third party pays the supplier early while you pay the third party later. This separates your cash position from the supplier's cash position and can make extended terms viable for both parties.
"We'll have to raise our prices if terms change"
Calculate whether the price increase is more or less expensive than the cost of the working capital you are releasing. A 1% price increase on €500,000 of annual spend costs €5,000 per year. A 30-day DPO extension on the same spend releases €41,000 in cash — an 8x advantage. In most cases, even a modest price increase is worth absorbing.
When there truly is no flexibility
Accept it gracefully, maintain the relationship, and revisit in 12 months. Markets and supplier financial positions change. The supplier who cannot accommodate extended terms today may be more open to it next year — especially if you have continued to be a reliable, prompt-paying customer in the interim.
Track DPO as a Monthly KPI
Once you have begun negotiating better terms, the discipline of measurement ensures the improvement sticks. Calculate your DPO at the end of every month and track it on a dashboard alongside your DSO and Cash Conversion Cycle.
The risk of not tracking it is real: terms get extended, then payment runs gradually drift back to faster timing because no one is monitoring. Twelve months later, the DPO has crept back down to where it started and the cash benefit has been silently reversed.
A well-maintained DPO tracker also gives you visibility into which suppliers represent the next negotiation target. If your analysis shows three suppliers where your actual payment timing is 15 days faster than your contracted terms, you know exactly where to focus next — without any negotiation required at all.
Key Takeaways
- DPO is the only CCC component where a higher number is better — it means cash stays in your business longer
- Before any negotiation, audit whether you are already paying faster than your contracts require — this is the quickest win with zero commercial risk
- Segment suppliers by spend and replaceability — focus effort on the top 20% who represent 80% of your payables
- Frame term extension as a structured commercial arrangement, not a favour — lead with your payment track record
- Always calculate the annualised rate of early payment discounts before deciding whether to take them
- A 30-day DPO extension on €2M in annual supplier spend releases approximately €164K in cash — permanently and at no cost
- Track DPO monthly to ensure the improvement does not quietly reverse over time
Where to Start
Begin with the audit. Pull your accounts payable data for the last six months, list every supplier's contracted terms, and compare those terms to your actual payment timing. You will almost certainly find money sitting on the table before you have spoken to a single supplier.
From there, identify your top five suppliers by spend and calculate what a 30-day extension with each one would release in cash. That analysis will give you a clear picture of the opportunity — and a compelling reason to start the conversation.
If you would like support with your accounts payable audit, DPO analysis, or preparing for supplier negotiations, book a free initial consultation. One conversation is usually enough to identify your most impactful next step.
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Book a Free ConsultationIvaylo has over 10 years of senior FP&A experience at Coca-Cola Europacific Partners, including managing accounts payable across multiple European business units and driving significant DPO improvement as part of large-scale working capital programmes. He founded Avi Finance to bring that expertise directly to SMEs across Europe.