The Setup
BuyerCo didn’t think twice about it.
Extending supplier payment terms by 15 days felt like a smart, harmless move. Finance needed to improve cash flow for the quarter, and shifting from 45 to 60 days seemed like a modest adjustment. No one raised objections. After all, PackPlus – the packaging supplier—had been a reliable partner for years. They’d surely manage.
Procurement signed off. Treasury gave the green light. The change went live quietly in the ERP.
What no one saw coming was that those extra 15 days would push PackPlus into a liquidity pinch. And from there, everything started to unravel.
The Immediate Reaction
For PackPlus, the new 60-day terms didn’t just show up in an email – it showed up in their cash flow model, instantly shifting the math.
They had raw materials on order. Payroll coming up. And several other customers, some of whom paid in 30 days or even upfront. With limited working capital and no flexible financing options on hand, PackPlus had to make a choice.
They couldn’t fulfill every order on time. So they prioritized the customers who paid faster.
BuyerCo – once considered a high-priority account – suddenly moved down the list.
Internally, no one at BuyerCo noticed right away. But PackPlus was already adjusting its production schedule. The consequences were set in motion.
The Chain Reaction
The first missed signal was subtle.
BuyerCo’s packaging delivery, scheduled for Monday, arrived four days late. Operations shrugged it off – maybe a transport issue. Production caught up with overtime.
The second shipment never made it. PackPlus, squeezed by delayed payments and raw material costs, had to cancel the order entirely. BuyerCo scrambled to find a substitute supplier, but lead times didn’t cooperate.
Then came the third blow. A partial shipment – only 60% of what was ordered—arrived the day before a major production run. BuyerCo’s manufacturing line slowed, then stopped.
One ripple became a wave. Delayed production meant delayed delivery to a major supermarket chain. That triggered a penalty clause in the contract. Weeks of relationship-building and negotiation vanished in one email: “Your team missed the delivery window. We’re revising volumes for next quarter.”
And all of it traced back to a 15-day shift in payment terms.
The Hidden Cost
On paper, BuyerCo’s term extension freed up €75,000 in working capital that quarter. But the real cost didn’t show up in a finance dashboard.
Do you find this article interesting?
Subscribe to our Newsletter for updates on the latest blog articles.
It showed up in production delays, late fees, and penalty clauses. It showed up in procurement crisis meetings, urgent courier quotes, and last-minute negotiations with backup suppliers. It showed up in missed revenue and shaken customer trust.
Internally, tensions flared. Procurement blamed finance for pushing the extension. Finance pointed to working capital targets. Operations was stuck in the middle, managing the fallout.
And PackPlus? They were frustrated. They didn’t want to deprioritize BuyerCo, but cash flow dictated their production schedule. They started screening new customers more carefully and quietly reduced BuyerCo’s credit limit.
What was meant to be a simple cash flow improvement ended up eroding a key supplier relationship and costing far more than it saved.
What Could’ve Prevented It
The irony? This entire spiral wasn’t inevitable.
BuyerCo didn’t need to tie up its own capital to keep suppliers like PackPlus stable. A flexible early payment program—one that gave suppliers the option to get paid earlier, without changing existing terms – could’ve filled the gap without disrupting BuyerCo’s cash flow.
With the right supply chain finance platform in place, PackPlus could’ve chosen to get paid in 15 days instead of 60, only when it needed the liquidity. BuyerCo would have met its working capital targets. PackPlus would have stayed on schedule. The shipments would’ve arrived on time.
Instead, the decision was made in isolation, without tools, transparency, or a true understanding of the downstream impact.
And the cost of that misalignment rippled across the entire chain.
Closing Takeaway
In supply chains, nothing happens in isolation.
A 15-day payment term extension might look minor in a spreadsheet, but on the ground, it can trigger real-world consequences: missed deliveries, broken contracts, lost trust.
Finance, procurement, and operations share responsibilities, but they also share risk. And when decisions are made without visibility into liquidity pressures across the chain, companies don’t just optimize, they gamble.
The smarter move isn’t choosing between your own cash flow and your supplier’s stability. It’s building a system where both can work – flexibly, predictably, and on demand.
Because when liquidity flows, everything else follows.
