What are the reasons for cash flow strains?
When cash flow is under pressure due to growth, it often holds more than one reason. Below you will find an overview of a few well-known cash flow culprits:
- Supplier payment terms for the payments of goods
- Supplier credit limits
- Payment terms for disbursement from marketplaces to the seller
Supplier payment terms
Payment terms are agreed when you purchase goods with one or our multiple suppliers. This could range from 14, 30, 60 days or even longer. The payment terms are dependent on your relationship with your supplier. New suppliers often maintain short - or even prepayment terms. Do you have a long term relationship with your supplier, then this often results in longer payment terms.
The challenge is to adjust supplier payment terms to disbursements from the marketplace. Cash flow pressure following growth increases when this adjustment fails to succeed.
Supplier credit limits
Supplier credit limits are in line with supplier payment terms. For example: your monthly credit limit is 100,000 euro with a payment term of 30 days, but your turnover increased to a purchase value of 150,000 euro. Your supplier credit limit is exceeded by 50,000 euro. This can be extended when you have a healthy, long term relationship with your supplier, but if you don’t, it might be the case that this results in direct payments. This means that 50,000 euro needs to be financed by the marketplace seller as a “cash-out”. This could put a brake on turnover growth when personal cash-out is not feasible, which is a pity!
Payment terms for disbursements from marketplaces
The consumer often pays directly to the marketplace, but the marketplace seller does not receive their earnings directly. The payment interval differs per marketplace: once or few times a month is common. A monthly payment term could put a strain on growth when turnover increases significantly.