FA-301f · Module 3
Vendor Payment Strategy
3 min read
How and when you pay vendors is a cash management lever with meaningful impact. Paying all invoices on receipt is generous but cash-destructive. Paying all invoices at maximum terms preserves cash but can damage vendor relationships. The optimal strategy segments vendors by strategic importance and manages payment timing accordingly.
Do This
- Segment vendors into tiers: strategic (pay promptly), standard (pay on terms), flexible (negotiate extended terms)
- Take early payment discounts when the annualized return exceeds your cost of capital (2/10 net-30 = 36% annualized)
- Batch payment runs to weekly or bi-weekly cycles to smooth cash outflows
- Negotiate annual or quarterly prepay discounts for high-value, predictable services
Avoid This
- Pay all vendors on receipt regardless of terms — you are giving away float
- Stretch all vendors to maximum terms regardless of relationship — you damage trust with strategic partners
- Process payments daily — the administrative cost exceeds the float benefit
- Pay annual contracts upfront without negotiating a discount — you are giving the vendor a free loan
Vendor Payment Strategy:
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Tier Criteria Payment Strategy
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Strategic Critical vendors, Pay within terms.
hard to replace. Take early-pay
(Cloud, core SaaS) discounts if offered.
Standard Important but Pay on terms (net-30
replaceable. or net-45). No early
(Tools, services) payment unless
discount > 20% annual.
Flexible Commodity vendors, Negotiate net-60.
many alternatives. Pay on final terms.
(Office, supplies) Switch if better
terms available.
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Float from strategic vendor management:
$400K monthly spend × 15 days avg extension
= ~$200K in permanent working capital freed.