Paying a Supplier After 180 Days: What Net 180 Does to Cash

What happens to your cash if a supplier lets you pay 180 days after delivery instead of 30? You stop funding your own stock. For a store that sells through its inventory in about three months, net 180 means the customer has paid you long before the supplier asks for a cent. The catch is in the price you pay for those terms and in what you do with the extra time.

What 180 days does to the cash you need

Take a small reselling store. It buys $12,000 of goods a month at cost, which is $400 a day on a 30-day month. It sells that stock for $600 a day, so gross margin sits at 33.3%. It holds about 90 days of inventory, and Shopify payouts land roughly 5 days after the sale.

On net 30, the numbers look like this. Inventory is 90 × $400 = $36,000. Money waiting on payouts is 5 × $600 = $3,000. What you owe the supplier at any moment is 30 × $400 = $12,000. So the cash tied up in running the store is $36,000 + $3,000 − $12,000 = $27,000. The cash conversion cycle is 90 + 5 − 30 = 65 days: for 65 days, every dollar of stock is your dollar, not the supplier's.

Now switch the same supplier to net 180. Payables grow to 180 × $400 = $72,000. Working capital becomes $36,000 + $3,000 − $72,000 = −$33,000, and the cycle is 90 + 5 − 180 = −85 days. The swing is $60,000: that is 150 extra days of purchases at $400 a day.

If you were carrying the $27,000 on a credit line, you can pay it off. To put a price on that money, use the capital part of your carrying cost.

When long terms cost more than they save

Suppliers rarely give 180 days for free. A common shape is a price uplift on the long terms. Say this one asks 4% more for net 180. Purchases go from $12,000 to $12,480 a month, which is $5,760 a year extra. The credit you gain is about 150 days of the new purchases, 150 × $416 = $62,400. So you are paying $5,760 for $62,400 of credit, or about 9.2% a year. If your credit line costs 12%, net 180 at +4% is cheaper than borrowing. If your own money sits idle and earns nothing, you are paying 9.2% for cash you didn't need.

The uplift is also a cost increase. Your cost per item goes up 4% the day the terms change, and every SKU from that supplier loses margin. A product at $30 retail and $20 cost earns 33.3%; at $20.80 cost it earns 30.7%. If your margin floor for that line is 31%, the terms just pushed it under the floor, even though nobody raised a price list. Shopify's cost field should hold the uplifted price.

Then there is overbuying. When the bill is six months away, an extra pallet feels free, but you still pay for it later. If inventory days creep from 90 to 200, the cycle is 200 + 5 − 180 = 25 days and you are back to funding stock yourself, now with more of it, at a higher unit cost. From month seven, a $12,480 invoice comes due every month whether or not the goods have sold. Long terms pay off if you keep ordering at your usual pace and hold the freed cash in reserve.

Before you accept long terms, compare them the same way you would any other lever, like the other levers in negotiating as a small account: what they are worth in dollars and what they cost in margin. CostSentry can help with the margin side: it tracks supplier cost changes per product and alerts you when a SKU falls below your margin floor, so you get a list of the products an uplift pushes under the floor.