Payment cycles: supplier terms, payout delays & the float
Profit and cash are not the same thing. The gap between paying your supplier and getting paid is the float, and it can sink a growing, profitable store.
AI can map your cash conversion cycle and show which lever shortens it most. But you supply the real terms and turns, because it must never invent your supplier terms or payout lag.
Fastest path: one prompt, end to end
🤖 AI prompt — paste into ChatGPT / Claude
You are a working-capital analyst for a DTC brand. Use MY numbers only (invent nothing).
Supplier payment terms: pay [deposit %] on order, [balance %] on [event: shipment/delivery], net [# days]
Days from paying supplier to inventory arriving: [# days]
Days of inventory on hand before it sells (inventory days): [# days]
Platform/processor payout lag after a sale: [# days]
Monthly revenue: [$]
Monthly COGS: [$]
Do this and show the arithmetic:
1. Days Inventory Outstanding (DIO) = days inventory sits before selling.
2. Days Sales Outstanding (DSO) = payout lag after a sale.
3. Days Payable Outstanding (DPO) = days you get to hold supplier cash (from your terms).
4. Cash Conversion Cycle (CCC) = DIO + DSO - DPO.
5. Estimate cash tied up = (COGS/30) x CCC.
6. Rank the levers (longer supplier terms, faster payout, higher inventory turns) by how many days each removes for THIS business.
If a number is missing, ask; do not guess.
Output: DIO, DSO, DPO, the CCC, cash tied up, and the top 2 levers to shorten it.
Or do it in 4 steps
- Map the timeline as dates. Day 0 you pay the supplier (or a deposit); around day 30 inventory arrives; it sells over the next weeks; then the platform holds your money for its payout lag. Draw it out so you can see how long cash is gone.
- Compute the cash conversion cycle. CCC = Days Inventory Outstanding + Days Sales Outstanding − Days Payable Outstanding. A positive CCC means cash leaves before it returns, and you must fund that gap; a negative CCC means customers effectively fund your inventory.
- Size the cash it ties up. Multiply your daily COGS by the CCC. That is roughly how much working capital is frozen in the pipeline at any moment, and it grows as you grow.
- Pull the three levers. Negotiate longer/deferred supplier terms (raises DPO), shorten payout frequency with the processor (cuts DSO), and turn inventory faster (cuts DIO). Each removes days from the cycle; do the one that removes the most days first.
Worked example (labeled): Inventory sits 45 days (DIO 45), platform pays out 14 days after sale (DSO 14), supplier gives net 30 (DPO 30). CCC = 45 + 14 − 30 = 29 days.
At $30,000 monthly COGS, daily COGS is $1,000, so about $29,000 is tied up in the cycle. Negotiating net 60 with the supplier would cut CCC to −1 day and free roughly $30,000. Illustrative, run your own terms.
This is where a profitable P&L and an empty bank account come from. Pair it with cashflow-basics to turn the cycle into a runway you can actually manage.