The distribution business model in its most honest form: you buy inventory with your money, deliver it to clients who have 30, 60, or 90 days to pay you, and then buy the next round of inventory before the first round is collected. You are, functionally, a lender who also drives a truck.
The Cash Flow Gap, Quantified
On $2M in annual revenue with Net-30 terms and an average actual payment lag of 45 days, you are carrying approximately $246,000 in outstanding receivables at any given moment. That $246K is your money sitting in your clients' bank accounts. Understanding this number is the first step to managing it.
Tactics to Accelerate Collection
Early pay discounts (2/10 Net-30): 2% discount if paid within 10 days moves payment 20 days earlier. Switch from checks to ACH — checks add 3–5 business days of float. ACH arrives in 1–2 business days. Enable online payment in your portal so clients can pay from their phone at 10pm. Send automated payment reminders at Day 25, 30, 35, and 45.
Structuring Terms for New Accounts
New accounts should start on prepay or Net-14 for the first two or three order cycles. After 60–90 days of clean payment history, extend Net-30. Terms are a privilege, not a default. When an account's payment latency increases by more than 15 days over two consecutive billing cycles, call them personally — not another email.