Two functions, one problem, rarely the same solution

Working capital optimization runs on two distinct decisions, and they are easy to confuse. The first is payment terms optimization: deciding what the terms between a company and each supplier or customer should be, based on benchmarks, supplier economics, and the working capital opportunity. The second is Supply Chain Finance (SCF): deciding how those terms are funded, so a supplier can be paid early through a financing arrangement even when the buyer pays later. Optimization sets the target. Financing supports it. They are not the same lever, and treating them as one is where most programs lose value.

Both decisions cross an internal boundary. Payment terms optimization and the SCF programs built on top of it are usually initiated by treasury, but they cannot succeed without procurement. This is one of the most consistently observed sources of failure in working capital initiatives, and one of the most predictable.

The reason is structural. Treasury and procurement are oriented toward different objectives, measured on different KPIs, and speak different financial languages. Treasury thinks in terms of DPO, DSO, cash conversion cycle, and free cash flow. Procurement thinks in terms of cost per unit, price reductions, and supplier relationship quality. These objectives are not inherently in conflict, but without deliberate alignment they pull the organization in opposite directions the moment payment terms are on the table.

This article explains why the treasury and procurement relationship is the single most important internal factor in working capital program success, how the collaboration gap shows up in practice, and what organizations can do to bridge it.

The treasury perspective: payment terms as a balance sheet lever

For treasury, payment terms are a financial instrument. Extending DPO from 45 to 75 days on a $2 billion spend base releases roughly $164 million in free cash flow. The arithmetic is simple: a 30-day extension is about one twelfth of annual spend, or roughly $82 million for every $1 billion of spend. That cash can reduce short-term debt, fund a share repurchase, or improve a credit rating metric. It appears directly on the balance sheet and in the free cash flow statement.

Treasury is also responsible for managing banking relationships. Banks that provide Supply Chain Finance programs are typically relationship banks, so the SCF arrangement is intertwined with revolving credit facilities, investment banking mandates, and other financial products. Treasury is therefore motivated to manage the SCF partnership carefully.

The treasury role has also broadened. A large share of treasurers now expect their remit to expand over the coming years, with strategic working capital management becoming increasingly central. The modern treasurer is no longer a passive cash manager. They are a strategic business partner, accountable for generating and deploying corporate liquidity.

The procurement perspective: payment terms as a negotiation variable

For procurement, payment terms are part of the total cost of a supplier contract. A supplier who accepts a longer payment term may adjust pricing to compensate for the additional financing cost. This means aggressive term extension can inadvertently increase the cost of purchased goods, offsetting the working capital gain. The point of payment terms optimization is to find the terms that hold up on both sides of that trade, which is exactly the judgment procurement is positioned to make.

Procurement professionals are also acutely aware of supplier relationship risk. Key strategic suppliers, those responsible for critical components, proprietary technologies, or single-source materials, may resist term changes if they perceive the request as punitive. Damaging these relationships can carry operational consequences that far exceed the working capital benefit.

There is a constructive model worth noting. Some of the most successful programs have been procurement-led rather than treasury-initiated, designed with suppliers in mind from the start and offering a financing option to every supplier in scope. In those cases the SCF program funds the terms while procurement owns the supplier conversation. When procurement leads with a supplier-first orientation, enrollment rates and working capital outcomes tend to be stronger. The challenge is ensuring that treasury and finance are fully aligned on program structure and goals from the outset.

Where the collaboration gap shows up

The misalignment between treasury and procurement shows up most commonly in three ways. Each one traces back to the same root cause: the two functions are working from different definitions and different data.

Conflicting KPIs

Procurement is measured on cost reduction. Treasury is measured on working capital improvement. When a term extension might prompt a key supplier to raise prices slightly, procurement sees a problem and treasury sees a solution. Without shared metrics that account for both dimensions, these incentive conflicts are never resolved.

Supplier communication breakdowns

When treasury changes payment terms through a bank platform without fully briefing procurement, suppliers often learn of the change through a formal letter rather than a conversation with their procurement contact. This creates confusion and resistance that coordinated communication would have avoided.

Opportunity missed at contract renewal

Payment terms are most effectively changed at contract renewal. Procurement teams control the renewal calendar, but they may not be tracking or flagging upcoming renewals to treasury. Without integration, terms renew to the status quo by default, and optimization windows close unused.

Building the collaboration framework

Organizations that have bridged the treasury and procurement divide share several characteristics. The most successful programs establish a formal Supply Chain Finance council or steering group that includes representatives from treasury, procurement, accounts payable, IT, legal, and accounting. This interdepartmental group meets regularly to review program performance, resolve conflicts, and align on strategy.

Common KPIs that span both functions are essential. These might include a combined metric that tracks both DPO improvement and purchase price performance, so working capital gains are not quietly offset by supplier price increases. Some organizations tie part of procurement compensation to payment terms outcomes, aligning procurement incentives with the company's cash flow goals.

The organizations that embed this model most effectively tend to build an internal Center of Excellence, a small standing team that develops competency in working capital analytics, supplier finance, and cross-functional program management. The Center of Excellence becomes the place where the shared language is actually maintained, so payment terms optimization and the financing built on top of it stay coordinated rather than competing.

This is also where a shared data layer earns its place. When both treasury and procurement look at the same supplier-level benchmarks, the same DPO gap analysis, and the same supplier scoring, conversations about which terms to target, and with which suppliers, become grounded in shared evidence rather than competing assumptions. You cannot align on a number that only one side can see. Calculum's payment terms intelligence platform draws on payment terms data from millions of companies globally, which gives treasury and procurement a common, externally benchmarked view to negotiate from. The benchmark decides what the terms should be, and SCF, where it is used, simply funds the result.

Frequently Asked Questions

Should we optimize payment terms first or set up financing first?

Optimize first. Payment terms optimization decides what the terms should be, supplier by supplier, based on benchmarks and each supplier's economics. Supply Chain Finance decides how those terms are funded once they are set. Standing up a financing program before the terms are right simply finances an unoptimized position and leaves the largest part of the opportunity untouched. Set the target with benchmarking, then use SCF to support suppliers as terms move.

How can procurement support treasury's cash flow goals?

Procurement can support treasury's cash flow goals by treating payment terms as a strategic variable rather than a fixed contract parameter. That means identifying term extension opportunities at contract renewal, communicating payment term changes to suppliers in partnership with treasury, enrolling key suppliers in SCF programs, and reporting on payment term performance as part of procurement's regular KPIs. When both functions share one view of the working capital opportunity, enrollment is faster and the financial outcomes are stronger.

Which internal teams need to be involved to make a working capital program effective?

The most effective working capital programs involve treasury for strategy, banking, and DPO ownership; procurement for supplier relationships and contract management; accounts payable for transaction processing and platform integration; IT for ERP connectivity and data security; legal for contract updates and compliance; and accounting for the treatment of trade payables. A cross-functional steering group with executive sponsorship is the most reliable governance structure for coordinating these teams.

Why do procurement incentives sometimes conflict with working capital goals?

Procurement teams are typically measured on the cost of purchased goods and services, and that KPI does not capture the working capital value of payment terms. A buyer who agrees to a longer payment term in exchange for a price concession may be making a decision that helps their own metric but costs the company on working capital. Aligning procurement incentives to include payment terms performance, either directly or through a shared cash flow metric, resolves the conflict.

What is a Supply Chain Finance council, and does our organization need one?

A Supply Chain Finance council, sometimes called a working capital steering group or Center of Excellence, is an interdepartmental governance structure that brings together every function involved in program design and management. It typically meets monthly or quarterly to review performance, resolve cross-functional issues, and align on priorities. Organizations with a formal council tend to achieve higher supplier enrollment and larger cash flow improvements than those running these programs as a pure treasury function.

About Calculum

Calculum's payment terms intelligence platform gives treasury and procurement teams the benchmarking data and analytical insight on their suppliers and customers they need to make working capital optimization a repeatable, data-driven process. By comparing payment terms against anonymized peer data drawn from millions of companies globally, identifying DPO and DSO improvement opportunities by supplier segment, and supporting execution, Calculum gives both functions one shared language and one set of evidence, so the organization can decide what terms should be before deciding how to finance them.

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The Working Capitalist