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Payment Terms

Payment terms specify when and how a seller must pay a supplier. In e-commerce, these terms often involve prepayment or split payments such as 30% upfront + 70% before shipment, rather than post-delivery credit.

Why It Matters

  • •Payment timing determines how early capital becomes locked in the inventory cycle.
  • •For many sellers, cash exits the business long before goods enter inventory, creating a negative or near-zero DPO.
  • •Small changes in payment structure can have more impact on cash flow than price reductions.
  • •Payment terms vary greatly between suppliers and must be evaluated together with lead time.

Connection to Capital

Payment terms directly determine the timing of cash outflow, affecting working capital needs and the length of the financial cycle. Earlier payments increase capital requirements; later payments shorten the cash cycle and improve capital efficiency.

Related Terms

Working Capital Capital Lock Lead Time

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Why Payment Terms Matter Much More Than They Seem

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