Supplier Terms and Stock: Free Up Cash in Your Business
Short answer: working capital is the cash tied up in running your business day to day: stock on the shelf, money customers owe you, less what you owe suppliers. You free cash by holding less stock, getting paid sooner and paying suppliers on the agreed due date rather than early. Often that releases more cash than a loan would, at no cost.
Over the past weeks we covered getting paid faster and forecasting 13 weeks ahead. This guide looks at the cash already inside your business.
Measure your cash cycle
Your cash cycle is the number of days between paying a supplier and being paid by your customer. Three numbers make it up:
Number | What it means | How to work it out |
|---|---|---|
Stock days | How long stock sits before it sells | Stock value ÷ monthly cost of sales × 30 |
Debtor days | How long customers take to pay | Amount customers owe you ÷ monthly sales × 30 |
Creditor days | How long you take to pay suppliers | Amount you owe suppliers ÷ monthly purchases × 30 |
Cash cycle = stock days + debtor days − creditor days. The shorter it is, the less cash the business needs to run.
An example. A business with R180,000 of cost of sales a month has 60 stock days, 45 debtor days and 30 creditor days: a 75-day cash cycle. Cut stock days to 45 and agree 45-day supplier terms, and the cycle drops to 45 days. Each day cut frees about one day of cost of sales, here around R6,000, so 30 days frees about R180,000.
Supplier terms
Ask for terms. Most regular suppliers offer 30 days to customers who pay reliably. Ask, and ask again once you have a payment record.
Pay on the due date, not the day the invoice arrives. Load payments to go out on the due date, so cash stays in your account for the full term.
Weigh early-payment discounts properly. A 2% discount for paying 20 days early is worth about 37% a year. If your cash can bear it, that is a good return; if it leaves you short, it is not.
Group your payment runs. One or two fixed payment days a month make cash easier to plan and supplier queries easier to answer.
Keep the relationship strong. Paying exactly when you promised is what earns longer terms and better prices.
Stock
Know your slow movers. List items by how fast they sell. The slowest 20% often tie up a large share of the cash.
Order smaller amounts more often. Unless a bulk discount clearly beats the cost of holding the stock.
Set a reorder point for your best sellers. Reorder when stock falls to a set level, rather than on a fixed calendar.
Clear old stock. Sell it at a lower margin, bundle it or return it to the supplier where your terms allow. Cash in hand beats stock that ages.
Count regularly. A monthly count of your key items catches shrinkage and errors before year end.
If you are a VAT vendor on the invoice basis, the VAT on stock you buy is claimed in the VAT period of the supplier's valid tax invoice, so keep those invoices complete and on time.
Customers
The third part of the cycle is how fast customers pay. Deposits, same-day invoices, debit orders and a fixed follow-up routine all shorten debtor days. See Get paid faster.
Track it in Xero
Xero's aged receivables and aged payables reports show who owes you and whom you owe. If you track inventory in Xero, its inventory reports show what you hold and what sells. Check your three numbers once a month and watch the cash cycle shorten.
Frequently asked questions
What is working capital?
The cash tied up in day-to-day running: stock and money customers owe you, less what you owe suppliers.
What is a cash conversion cycle?
The number of days between paying suppliers and being paid by customers. It equals stock days plus debtor days minus creditor days.
How can a small business improve its working capital?
Hold less slow-moving stock, get paid sooner with deposits and same-day invoices, and pay suppliers on the agreed due date rather than early.
Should I take an early-payment discount from a supplier?
Often yes, if your cash flow can bear it: a 2% discount for paying 20 days early is worth about 37% a year. Do not take it if it leaves you short before payday.
How often should I count my stock?
Count key items monthly and do a full count at least at year end, so errors and shrinkage are caught early.
Related guides
See your cash cycle every month
With your books up to date in Xero, your debtors, creditors and stock figures are current every month. Our team keeps your bookkeeping, VAT, payroll and tax in order for one fee: 1% of your business turnover, from R79 a month excluding VAT. See Accounting & Bookkeeping or book a free meeting.
Sources: SARS: Obligations of a VAT vendor.
This article is general information, current at November 2026. It is not advice for your specific situation.
