6 Niche Tips for Improving Inventory Turnover: How Late Vendor Payments Hurt Your Business

Cash flow disruptions from delayed vendor payments create ripple effects throughout supply chains, affecting the average inventory value and overall inventory management. When businesses hold back payments to preserve working capital, they inadvertently damage relationships with key suppliers and slow down their own inventory cycles, affecting their average inventory levels and overall inventory management. The average payment delay has increased to 66 days globally, according to recent Allianz Trade research. These delays force suppliers to implement stricter payment terms, reduce stock availability, or even halt shipments - directly impacting the buyer’s ability to maintain optimal inventory levels.

A manufacturer who consistently pays suppliers late may find their previously reliable vendor suddenly requiring prepayment or reducing credit terms. This creates a negative feedback loop: restricted trade credit forces the business to order in smaller batches more frequently, increasing both ordering costs and stockout risks. The resulting inventory inefficiencies further strain working capital, perpetuating the cycle of late payments.

When faced with chronically late-paying customers, suppliers take protective actions that harm both parties’ operations. They may reduce credit limits, require cash-in-advance payments, or deprioritise orders from unreliable payers.

These defensive responses directly affect inventory management capabilities. Reduced credit limits force companies to place smaller, more frequent orders - increasing administrative overhead and transportation costs. Cash-in-advance requirements lock up working capital that could otherwise fund optimal order quantities. Order deprioritisation leads to longer lead times and higher safety stock requirements. The cumulative effect creates a significant drag on inventory turnover ratios, often resulting in excess inventory.

Balancing inventory levels to meet customer demand is crucial to avoid lost sales and maintain operational efficiency.

The true cost of delayed vendor payments extends far beyond simple late payment penalties. When analysing the total cost of poor payment practices, businesses must consider multiple factors. Lost early payment discounts represent significant missed savings, as many suppliers offer 2/10 net 30 terms or similar incentives. Suppliers also factor payment uncertainty into their pricing models, leading to higher base prices for unreliable payers.

The operational impacts compound these direct costs - suboptimal order quantities increase carrying costs, while more frequent orders drive up administrative overhead. Emergency expediting fees from stock shortages add further expense, and reputational damage harms long-term vendor relationships. These compounding costs can quickly exceed any short-term cash flow benefits from delayed payments.

Additionally, low inventory turnover can result in tied-up capital and negative cash flow, as well as increased cost of goods sold, which impacts overall profitability. However, maintaining a high inventory turnover can mitigate some of these costs by ensuring strong sales and better cash flow.

Addressing payment delays requires a strategic approach focused on both process improvements and financial tools. Start by analysing current payment patterns to identify root causes of delays. Implementing inventory management software can also help streamline these processes, providing real-time tracking and integration with other systems to enhance overall business efficiency. Most companies face three primary challenges:

Manual approval workflows create bottlenecks in the payment process, with invoices sitting in queues waiting for signatures or getting lost between departments.

Payment cycles and cash flow patterns fall out of alignment, forcing companies to juggle incoming revenues against outgoing payments.

Limited visibility into upcoming obligations makes it difficult to forecast and prepare for major payment requirements.

Tracking the impact of payment optimisation efforts requires careful attention to the right metrics.

Inventory turnover calculation is crucial for assessing how quickly products sell and managing stock levels effectively, which directly impacts business efficiency. Inventory turnover ratio measures serve as a key performance indicator, evaluating how efficiently businesses generate sales from their inventory stock. A good inventory turnover ratio typically ranges from 4 to 6, varying by industry, and is essential for efficient inventory management. Understanding this ratio can aid in making informed business decisions regarding stock levels and sales performance.

Days Payable Outstanding (DPO) serves as a primary indicator, but must be balanced against vendor relationship health. Perfect Payment Score tracks the percentage of payments made according to agreed terms, while Early Payment Discount Capture Rate measures success in securing available savings. Together, these metrics help identify areas for continued improvement while demonstrating the return on payment optimisation investments.

Strong supplier relationships depend on reliable payment practices. When vendors trust they will receive timely payment, they become true business partners. The benefits of these partnerships materialise in multiple ways:

Vendors offer preferential pricing and payment terms, recognising the lower risk and administrative cost of dealing with reliable payers

Priority access to limited inventory helps maintain optimal stock levels and improve the inventory turnover rate even during supply disruptions

Collaborative planning and forecasting improves supply chain efficiency for both parties

Additionally, a higher inventory turnover ratio can significantly enhance sales performance by ensuring that products are fresh and meet current market demand.

Modern businesses require modern payment solutions for improving inventory turnover. Traditional banking infrastructure struggles to support the complex payment needs of global supply chains. Forward-thinking companies need specialised financial technology platforms to accelerate cross-border payments, automate workflows, and strengthen compliance controls.

Fyorin streamlines global financial operations by giving 360-degree visibility into cash positions across multiple institutions and enabling secure money movement in 100+ currencies. It helps businesses optimise vendor payments, improve working capital, and strengthen supplier relationships - all vital for healthy inventory turnover. With virtual card programs, automated reconciliation, and streamlined compliance, Fyorin transitions businesses from reactive payment management to proactive financial supply chain optimisation, fostering stronger supplier relationships and sustainable competitive advantages. Get in touch.