The working-capital gap between suppliers and customers

The defining cash-flow problem of distribution is one of timing, not profit. You typically pay suppliers on short terms, often net-15 to net-30 and frequently with an upfront deposit, while your own customers pay you on longer terms, often net-30 to net-60. The cash leaves before it comes back, and the gap between the two is commonly somewhere in the 45 to 90 day range.

That gap can block a large, profitable order outright. The margin can be healthy and the demand real, yet you still cannot place the order because the money has to be out the door for weeks before any of it returns. This guide explains the cash conversion cycle in plain terms and the practical levers for closing the gap.

Why the gap exists

Distribution sits in the middle of a chain, and the two ends of that chain pull in opposite directions. Suppliers, especially overseas manufacturers, want certainty, so they ask for deposits and short terms. Customers, especially larger ones, want flexibility, so they push for longer terms. You absorb the difference.

The result is a structural mismatch. For any given order, your cash is committed early, through a deposit and then a balance, and recovered late, after the goods are delivered and the customer's payment terms have run their course. Multiply that across a full order book and you have a permanent pool of cash tied up in the gap. It is not a sign of a bad business; it is simply how the cycle works in this trade.

The cash conversion cycle in plain terms

The cash conversion cycle is the number of days between paying for goods and getting paid for them. It has three moving parts:

• How long you hold stock. The days between goods arriving and goods being sold. Distributors usually run lean here, which helps, but stock still sits for a while.
• How long customers take to pay. The days between selling and being paid, set largely by the terms you grant.
• How long you take to pay suppliers. The days between buying and paying, which works in your favour and offsets the other two.

Put simply: stock days plus customer-payment days, minus supplier-payment days, gives you the cash conversion cycle. When suppliers want money fast and customers pay slowly, that number grows, and every extra day is cash you have to fund from somewhere.

Why a healthy order can still be blocked

Because distributors run lean inventory and lean cash, a timing break has immediate consequences. Imagine a customer places an order well above your usual size. The margin is good, but to fulfil it you must pay a deposit now, the balance on shipment, and then wait through your customer's terms before any cash returns. For perhaps two to three months, that order is pure outflow.

If your available cash cannot cover the outflow, the order is blocked no matter how profitable it is. This is the cruel part of the working-capital gap: it bites hardest exactly when you are winning, because growth means larger orders and larger orders mean larger gaps. Recognising that the constraint is cash timing, not margin, is the first step to managing it deliberately.

The levers that close the gap

You have four broad levers, and most businesses use a mix:

• Smaller or staged deposits. Negotiating a lower deposit or milestone payments keeps less cash committed early.
• Longer supplier terms. Earning net terms from suppliers shrinks the gap from the supplier side; trust built over repeat orders is what buys this.
• Faster receivables. Tighter invoicing, clear terms and follow-up on late payers pulls cash back sooner.
• Financing the gap. Where an order exceeds the cash you can free, options such as purchase-order financing let a financier pay the supplier so you can take the order, repaying once the customer pays.

None of these is a cure on its own. Closing the gap is usually about combining a slightly smaller deposit, slightly longer supplier terms and slightly faster collection so the cycle tightens from several directions at once.

How Altery fits

Altery does not lend, and it is not a bank, but a multi-currency account changes how comfortably you can sit inside the gap. You can hold USD, EUR and GBP, so when a customer pays you in one currency and a supplier needs another, you are not forced to convert twice while you wait, taking an FX hit on both legs. You can convert on your own timeline rather than at the moment a payment lands.

Across multiple entities and currencies, real-time balances and categorised spend show your true cash position in one place, so you can see how much is genuinely free before committing to a large order rather than guessing. Ring-fencing money into dedicated pots lets you reserve cash earmarked for a supplier balance so it is not accidentally spent elsewhere while a receivable is still outstanding. This is general information, not financial advice.

Frequently asked questions