Minimizing Payment Float: Stop Bleeding Cash While Waiting to Get Paid
You ship a $5,000 wholesale order on Monday. The boutique pays you 45 days later. Meanwhile, you paid your leather supplier $1,800 last week in cash. You're profitable on paper, but your bank account is hemorrhaging cash for 6 weeks. This is payment float, and it's strangling your business. Here's how to fix it.
The $8,400 Cash Trap
Sarah runs a successful ceramic business. She landed three wholesale accounts—boutiques that order $2,000-3,000 per month. Great for revenue, terrible for cash flow.
In March, she fulfilled $7,200 in wholesale orders. She paid her clay supplier $2,100 upfront (due immediately). She paid herself $1,800 for labor. She paid shipping $300. Total cash out: $4,200.
The boutiques all operate on Net-45 payment terms. So Sarah's $7,200 in revenue won't arrive until mid-May—60 days later. Meanwhile, she's out $4,200 in real cash right now.
Payment float: 45 days average. Cash tied up: $8,400 at any given time (two months of expenses waiting for payment). She's profitable but constantly broke. The float is killing her.
What Is Payment Float and Why Does It Matter?
Payment float is the time gap between when you pay for inputs (materials, labor, overhead) and when you actually receive cash from your customer for the finished product. During this gap, your cash is "floating" out there in the economy, tied up in someone else's account while you wait.
Here's the brutal reality: The longer your payment float, the more working capital you need just to keep operating. Every day of float is a day your cash is trapped instead of working for you.
The Payment Float Formula
Float Days = (Days Until Customer Pays) - (Days Until You Pay Suppliers)
Customer pays in 45 days (Net-45), you pay supplier immediately (Day 0)
Float: 45 days (your cash is tied up for 6 weeks)
Customer pays in 30 days (Net-30), you pay supplier in 15 days (Net-15)
Float: 15 days (much better, but still 2+ weeks)
Customer pays deposit of 50% upfront, balance on delivery; you pay supplier Net-30
Float: Negative! (you get paid before you pay supplier)
The goal: Get your float as close to zero as possible, or even negative (where customers pay you before you pay suppliers). Each day of float reduction frees up cash.
The Payment Float Problem: A Real Example
Let's walk through what payment float looks like in practice for a leatherworker named Marcus:
Marcus's Monthly Cycle (Before Fixing Float)
Week 1: Production
- • Receives $4,000 wholesale order from boutique
- • Pays leather supplier $1,200 immediately (COD terms)
- • Spends 30 hours crafting wallets and bags
- • Pays shipping to boutique: $80
- Cash out: $1,280 | Cash in: $0
Week 2-6: Waiting
- • Boutique received goods in Week 1
- • Payment terms: Net-45 from delivery date
- • Marcus waits... and waits... and waits
- • His $1,280 is still gone from his account
- Cash out: $1,280 (still floating) | Cash in: $0
Week 7: Payment Arrives
- • Boutique finally pays $4,000
- • Marcus recoups his $1,280 expense from 6 weeks ago
- • Profit: $2,720 (revenue $4,000 - expenses $1,280)
- Cash in: $4,000 | Net cash improvement: +$2,720
Problem: Marcus's $1,280 was locked up for 45 days. If he does $10,000/month in wholesale with Net-45 terms, he needs roughly $6,000-7,000 in working capital just sitting there, waiting to be repaid. That's cash he can't use for new materials, equipment, or growth.
Five Strategies to Minimize Payment Float
You can't eliminate float entirely unless you only accept immediate payment (retail/craft fairs). But you can dramatically reduce it. Here are five strategies that work:
Require 50% Deposit on Custom/Wholesale Orders
Instead of waiting 30-45 days for full payment, require 50% upfront before you start production. You get half your cash immediately, which covers most or all of your material costs. The remaining 50% arrives on delivery or Net-15.
Impact Calculation:
$4,000 order with 50% deposit = $2,000 received upfront. If your material cost is $1,200, the deposit more than covers it. Your actual cash outlay: $0 (the deposit pays for materials). Float reduced from 45 days to 0-15 days.
On $10,000/month wholesale: This frees up $5,000 in working capital immediately.
Offer Early Payment Discounts (2-3% for Net-7 vs. Net-30)
Incentivize customers to pay faster by offering a small discount. Common structure: "2% discount if paid within 7 days, otherwise Net-30." Most wholesale customers will take the discount.
Impact Calculation:
$4,000 invoice with 2% early payment discount = customer pays $3,920 in 7 days instead of $4,000 in 30 days. You "lose" $80 in revenue but gain 23 days of cash access. Your working capital is freed up 3+ weeks earlier.
Is it worth it? Yes. That $80 "cost" is effectively a 2% interest charge for a 23-day loan. Annualized, that's roughly 32% APR—steep, but far cheaper than a merchant cash advance (80-200% APR) or maxing out credit cards (18-24% APR). Plus, you avoid cash flow stress.
On $10,000/month wholesale with 75% early payment adoption: Cash comes in 23 days faster, freeing up $3,000+ in working capital.
Use Credit Cards as a Float Bridge
Pay your suppliers with a business credit card. You get 25-30 days before the CC bill is due. If your customer pays you within 30 days, you use their payment to pay off the CC—zero interest. The CC effectively bridges the float gap.
How It Works:
- • March 1: Pay supplier $1,200 with credit card
- • March 15: Ship order to customer
- • March 30: CC bill is due, but you don't pay yet (grace period until April 25)
- • April 15: Customer pays you $4,000 (Net-30 from March 15)
- • April 20: Pay off CC balance $1,200 with customer's payment
Net effect: You never had to front the $1,200 from your operating cash. The CC floated it for you. If your customer is reliable and pays within 30-45 days, this costs you nothing (assuming you pay CC in full each month, no interest).
Bonus: Many business credit cards offer 1-2% cash back on purchases, effectively giving you a small rebate on materials.
Negotiate Shorter Payment Terms (Net-15 Instead of Net-30)
When onboarding new wholesale customers, set payment terms at Net-15 instead of accepting their default Net-30 or Net-45. For existing customers, renegotiate: "Starting next quarter, we're moving to Net-15 terms for all accounts."
How to Negotiate Successfully:
- • For new customers: State your terms upfront. "Our standard payment terms are Net-15." Don't negotiate against yourself by offering Net-30 first.
- • For existing customers: Frame it as a business necessity. "We're tightening cash flow management to ensure consistent supply. We're moving all accounts to Net-15 starting April 1. Let me know if you need a transition plan."
- • Offer a sweetener: "Move to Net-15, and we'll prioritize your orders during busy seasons" or "Net-15 customers get first access to new product releases."
Impact: Reducing Net-30 to Net-15 cuts your float in half. On $10,000/month wholesale, this frees up $5,000 in working capital.
Implement Weekly Payment Collections for High-Volume Customers
For wholesale customers who order weekly or bi-weekly, move from monthly invoicing to weekly settlements. Instead of one $8,000 payment at month-end (Net-30 = 30-60 day float), collect four $2,000 payments weekly (7-14 day float).
Example Structure:
Customer orders every Monday. You ship on Thursday. Invoice due the following Tuesday (7 days). This keeps cash flowing weekly instead of in monthly lumps.
Old way: $8,000 payment on March 31 for all of March's shipments (average float: 30-45 days)
New way: $2,000 payment on March 8, March 15, March 22, March 29 (average float: 10-14 days)
Impact: Reduces float by 20-30 days, freeing up $4,000-5,000 per high-volume customer.
Real Success Story: Leatherworker Frees Up $8,400
Marcus (the leatherworker from earlier) implemented three float-reduction strategies:
- 1. Required 50% deposits on all wholesale orders: His three main customers agreed. This freed up $5,000 (50% of his typical $10,000/month outstanding).
- 2. Negotiated Net-15 with two of three customers: One customer balked and stayed Net-30, but two agreed to Net-15. This cut float time in half for 65% of his business.
- 3. Started using a business credit card for leather purchases: His supplier charges his CC on delivery, giving him 25-30 days before payment is due. His customers pay Net-15, so he pays the CC with customer funds before interest kicks in.
Total cash freed up: $8,400. His working capital requirements dropped from $14,000 to $5,600. Same revenue, same profit, dramatically better cash position.
He used the freed-up cash to buy a new leather splitter ($2,800), which increased his production speed by 30%. Six months later, his revenue is up 25% without any additional cash flow stress.
How the Strategies Compound
The magic happens when you combine multiple strategies. Each one addresses float from a different angle. Together, they can reduce your float from 30-45 days down to near-zero or even negative.
Compound Impact Example: Soap Maker
| Scenario | Avg Float (Days) | Working Capital Needed |
|---|---|---|
| Baseline: Net-45, pay suppliers COD | 45 days | $15,000 |
| + Strategy 1: 50% deposits | 22 days | $7,500 |
| + Strategy 2: 2% discount for Net-7 | 12 days | $4,000 |
| + Strategy 3: Supplier Net-30 via CC | -18 days | $0 (negative float!) |
Result: By implementing all three strategies, working capital requirements dropped from $15,000 to $0. In fact, with negative float, customers pay before she pays suppliers—she's operating on their cash, not hers.
Common Objections and How to Handle Them
Objection: "My wholesale customers won't agree to deposits or shorter terms."
Response: You won't know until you ask. Many makers assume customers will balk, but in reality, 60-70% agree when you position it professionally. Frame it as standard business practice: "Our payment terms are Net-15 with a 50% deposit." If they truly won't budge, price their orders 5-10% higher to compensate for the cash flow cost.
Objection: "I'll lose customers if I change payment terms."
Response: Customers who can't pay Net-15 or provide a deposit are high credit risk. Do you really want to be their interest-free bank? If they push back, offer a transition: "For the next three months, we'll honor Net-30, then move to Net-15 starting Q2." Most will accept.
Objection: "Credit cards charge 2-3% processing fees, so I avoid them."
Response: True for customer payments, but paying suppliers with your business credit card (not customer CC payments) has no fee—you're just buying materials on credit. Plus, you earn cash back. If you can't get supplier Net-30 terms, the CC is the next best thing.
How TrueCraft Helps You Manage Payment Float
Manually tracking payment float across multiple customers, invoices, and suppliers is tedious and error-prone. TrueCraft automates float tracking and gives you actionable insights to minimize it.
Payment Float Calculator
TrueCraft automatically calculates your average float days by customer and overall. See at a glance: "Customer A: 38 days average float. Customer B: 12 days. Overall: 27 days." Know where the pain is.
Customer Payment Term Manager
Set payment terms per customer (Net-15, Net-30, 50% deposit, etc.). TrueCraft tracks invoice due dates, sends automatic reminders, and flags overdue accounts. No more manual spreadsheet tracking.
Float Impact Scenarios
Model "what if" scenarios: "What if I require 50% deposits?" or "What if I move Customer A to Net-15?" TrueCraft shows projected working capital freed up. Make data-driven decisions.
Cash Flow Timeline Visualization
See a visual timeline of when cash goes out (material purchases, labor) and when it comes in (customer payments). Spot gaps at a glance. TrueCraft highlights: "You'll be $4,000 short on March 15 unless Customer B pays early."
Free Up Thousands in Working Capital
Payment float is invisible but deadly. TrueCraft makes it visible and actionable. Track float by customer, model term changes, and reclaim your cash. Stop waiting 45 days to get paid for work you already did.
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