Cash Flow Stress from Customer Payment Delays

Definition

Machine shops typically extend 30-60 day payment terms to major customers (automotive OEMs, aerospace, construction). Large customers often pay in 45-90 days or more. For small shops with limited working capital, this creates severe cash flow stress: (1) Purchase materials upfront but receive customer payment 60+ days later; (2) Payroll must be met weekly but revenue is received months after work completion; (3) Equipment financing and facility lease payments are due monthly regardless of customer payment; (4) Growth is constrained by cash conversion cycle—a shop cannot grow faster than its customer payment delays allow. A shop with $100k monthly materials and labor costs cannot grow beyond this rate without external financing. When customers (large OEMs) extend payment terms to 90+ days, SMBs must either (a) obtain expensive working capital financing, (b) reduce growth, or (c) take on credit risk. The problem is structural: large customers use payment delays as a form of free financing, shifting working capital burden to suppliers.

Why This Matters

Working capital financing, supply chain financing (payables optimization), invoice factoring, customer payment acceleration (early payment incentives), receivables management software

Affected Stakeholders

Shop Owner / Operations Manager

Related Business Risks