How most brands pay their suppliers

The typical flow looks like this: you send a purchase order to your factory. You wire a deposit — usually 30% — when production starts. You pay the remaining 70% when the goods ship or when they arrive at your warehouse. By the time a customer buys the product, your cash has been tied up for weeks or months.

What this means financially is straightforward. You've paid for inventory before it generates any revenue. The stock sits on your balance sheet as an asset, but in practice it's dead capital — cash you can't use for marketing, hiring, or new product development until those units sell.

A simple example: Say you place a $100K production order. You wire $30K as a deposit when production starts. Six weeks later, the goods arrive and you pay the remaining $70K. Now you have $100K worth of inventory on the shelf — but your bank account is $100K lighter. If it takes another 8 weeks to sell through that inventory, you've had $100K locked up for roughly 14 weeks. That's cash that could have been working for you elsewhere.

For most brands, this feels like the only option. It's how things have always been done. But there are ways to restructure this — and the impact on your cash position can be significant.

Three ways to restructure supplier payments

Think of supplier payment structures as a spectrum. On one end, you're paying everything upfront. On the other, you're only paying when the product sells. Most brands sit at the far left of that spectrum without realizing there's room to move.

Option 1: Negotiate Payment Terms

Instead of paying on delivery, you negotiate to pay 60, 90, or even 120 days after receiving the goods. The inventory arrives at your warehouse, you start selling it, and you pay the supplier later — ideally after you've already collected revenue from those sales.

Example: Same $100K order. Instead of paying the $70K balance on delivery, you negotiate net-90 terms. The goods arrive, you start selling, and 90 days later you pay the balance. If your sell-through rate is reasonable, you've collected $60-80K in revenue from that inventory before the payment is due. Your cash position is fundamentally different.

This doesn't compound over time — it's a one-time improvement to your working capital position. But it can be a meaningful shift. A brand doing $200K/month in COGS that moves from pay-on-delivery to net-90 frees up roughly $200K in working capital.

The key question is how to get there. Suppliers don't offer extended terms to brands they don't trust. In our experience, the brands that successfully negotiate better terms are the ones that invest in the relationship — visiting the factory, understanding the supplier's operation, and demonstrating reliability over multiple order cycles. An email asking for net-90 after your second order rarely works. A face-to-face conversation after 18 months of on-time payments often does.

Option 2: Match Inventory Levels to Your Payment Window

Once you have payment terms in place, the next step is making sure you're not holding more inventory than you can sell within your payment window. This sounds obvious, but it's where many brands get into trouble.

Example: Your production lead time is 3 weeks. Your payment terms are net-90. That gives you roughly 110 days from when goods are produced to when payment is due. If you're carrying 150 days of inventory, you're paying for stock that hasn't sold yet — which defeats the purpose of having terms in the first place. The goal is to keep your inventory turning inside the payment window so you're always selling before you're paying.

This requires your inventory plan and your cash plan to be connected. If your operations team is placing purchase orders based on a sales forecast and your finance team is managing cash in a separate spreadsheet, those two models need to be talking to each other. Every PO should have a visible cash flow consequence before you commit to it.

This is one of the first things we build for clients at Shopkeeper — a model that ties reorder timing to cash position so there are no surprises.

Option 3: Consignment

At the far end of the spectrum is consignment — where you only pay the supplier when the end customer buys the product. The inventory might sit in the supplier's warehouse or a shared facility, but it doesn't hit your balance sheet until it sells.

What this means financially: No deposit. No balance-on-delivery payment. No PO liability on your books. You're only paying for what sells. Your working capital stays liquid instead of being locked up in stock that may or may not move.

This is rare. Very few brands operate on consignment with their suppliers. It requires a deep, trust-based relationship and a level of transparency that most brands aren't used to providing — full visibility into your sales data, inventory turns, and cash flow. The supplier needs to see your business clearly enough to feel comfortable holding inventory on their end.

The pitch isn't "take on my risk." It's closer to: "Here's full access to our sales data and cash position. You can see what's selling and when you'll get paid. We both benefit from better inventory alignment."

These options build on each other

You can't jump straight to consignment. A supplier won't take on inventory risk for a brand they've worked with for six months. These options are sequential — you earn each level through the one before it.

Start by paying reliably and building the relationship. Negotiate terms once you've established trust. Optimize inventory duration once terms are in place. Explore consignment once you have a long track record, growing volumes, and the infrastructure to share data transparently.

Rethinking the supplier relationship

The default posture for most brands is to treat the supplier as a vendor — someone you place orders with and negotiate against. That framing limits what's possible.

Factories have been working with consumer brands for decades. They've seen brands grow, plateau, and fail. They understand demand cycles, production planning, and cash management — often better than the brands they supply. A factory that trusts you and understands your business is far more valuable than one that simply fills orders.

The brands that get the best terms, the most flexibility, and eventually the most creative deal structures are the ones that treat the relationship as a partnership. That means sharing information, showing up in person, and building a structure where both sides benefit from the brand's growth.

The finance angle

This isn't just a supply chain conversation. It's fundamentally a cash flow conversation, and it should be part of your finance team's scope.

The questions worth asking: How much working capital is currently tied up in inventory? What's your cash conversion cycle — from the day you pay the supplier to the day you collect revenue from the customer? What would net-90 terms do to your rolling cash forecast? Are you carrying more inventory than your payment window supports?

If your finance team isn't modeling these scenarios, there's likely cash locked in your supply chain that doesn't need to be.

Book a call and we'll look at your current supplier terms and inventory levels to see where the opportunities are.