What is driving the extension of payment terms?

Over the past two decades, payment terms across global supply chains have lengthened significantly. What was once a standard 30-day cycle has, for many large buyers, stretched to 60, 90, 120, or even 180 days. This is not an accident, it is the result of a smart financial strategy by large corporate buyers seeking to improve their working capital.

Recent PwC working capital research confirms how significant this shift has become. PwC's 2025/26 Working Capital Study highlights that global companies are still holding €1.8 trillion in excess working capital, while UK net working capital days have increased by 48% since 2015, showing how much cash remains trapped across supply chains. At the same time, debtor days have risen by 5.7% over the past decade, and inventory days in Western cash-intensive sectors have increased by 13.6%, putting even greater pressure on large buyers to protect liquidity through stronger payables management. As a result, extending supplier payment terms remains one of the fastest and most direct ways for corporations to release cash from operations. However, rather than relying on blanket extensions alone, leading organizations are increasingly using benchmark-driven optimization, combining supplier segmentation, market comparisons, and financing solutions to extend terms where justified while protecting supplier resilience and complying with growing payment terms regulation.

Several structural forces are driving this extension:

1. Globalization and the rise of supply chain competition

Today, 63% of large corporations operate supply chains spanning 40 or more countries, and 11% operate in over 80 jurisdictions. As supply chains stretched globally, the power dynamic between buyers and suppliers shifted. Buyers, particularly large, investment-grade multinationals, gained significant leverage over more fragmented, regional supplier bases.

In this environment, buyers extend payment terms to improve Days Payable Outstanding (DPO), generate working capital, and effectively align terms to the market benchmark.

2. The shareholder value imperative

Corporate finance priorities have increasingly focused on generating free cash flow to support dividends, share buybacks, and acquisitions. Payment terms extension is one of the fastest and most direct levers to achieve this. It is free liquidity, immediately improving working capital ratios.

This has led to a feedback loop: as industry leaders extend terms, others follow to remain competitive. In food and beverage, for example, what was once a 60-day standard has migrated to 90 days, and more recently to 120 days, with some buyers pushing 180 days.

3. Regulatory pressure on banks

Post-2008 financial reforms, including Basel III and Dodd-Frank, forced banks to hold more capital against risk-weighted assets and reduce their exposure to smaller counterparties. This made traditional credit facilities more expensive and less accessible for small and mid-sized suppliers.

As a result, suppliers that once relied on bank credit to manage cash flow gaps found those facilities reduced or repriced.

The hidden cost of 'just extending' payment terms

For buyers, extending payment terms without any intelligence may look simple and attractive on paper. But the system-level consequences of doing it without any data insights can be significant and often underappreciated:

  • Supplier financial stress: Smaller suppliers with constrained access to capital face higher borrowing costs and greater financial instability when terms extend too far.
  • Supply chain disruption risk: When a tier-two or tier-three supplier fails due to liquidity pressure, the impact cascades up the supply chain in ways the buyer may not anticipate.
  • Supplier pricing response: If terms are pushed out beyond what other customers are paying the same supplier, the vendor may embed the financing cost into its pricing, meaning the buyer pays eventually, just less visibly.
  • Relationship damage: Aggressive term extension without any data backing it can erode trust with strategic suppliers, reducing their willingness to invest in the relationship, offer preferential pricing, or prioritize the buyer during constraints.

What companies don't know but should

Perhaps the most important gap in how organizations manage payment terms today is not the length of the terms themselves, it is the absence of market context and benchmark intelligence.

Most companies set payment terms based on internal norms, historical practice, or just based on the management asking for it without any data supporting the decision. They don't know:

  • What terms their direct peers are achieving in the same industry?
  • What terms does the same supplier offer to other customers?
  • Whether their current payment terms (not just DPO) are above or below market benchmarks?
  • Which supplier segments represent the highest optimization opportunity?

Without this data, term extension decisions are made conservatively, and significant working capital opportunity remains uncaptured. Equally, without this data, buyers cannot identify when they are already at or beyond market norms, creating unnecessary supplier stress.

The path forward: intelligent payment terms

The most sophisticated working capital teams are moving beyond ad-hoc negotiation toward a structured, data-driven approach:

  • Benchmark first: Understand where current terms sit relative to your industry and your peer norms, using the latest aggregated market intelligence.
  • Segment strategically: Not all suppliers warrant the same approach. Strategic suppliers may require different term structures than tail-spend vendors or indirect spend suppliers.

Optimize before financing: Where terms can be extended sustainably, do so before deploying Supply Chain Finance (SCF). Financing programs such as Supplier Finance and Reverse Factoring performs best as an enhancement, not a workaround or reason to extend payment terms

Protect supply chain health: Review the credit rating of each supplier and use financing tools where term extension creates genuine supplier stress, ensuring optimization does not compromise supply chain resilience.

Frequently Asked Questions

What is Days Payable Outstanding (DPO)?

Days Payable Outstanding (DPO) measures how long a company takes to pay its suppliers after receiving goods or services. It is calculated as: DPO = Accounts Payable / (Cost of Goods Sold / 365). A higher DPO means the company is taking longer to pay, improving its own working capital by retaining cash longer..

How much have payment terms lengthened in recent years?

According to Moody's research, trade payable days extended by more than 35% between 2005 and 2014 across their rated corporate universe, from an average of 56 days to 76 days. By 2016, the global average DPO was 64.5 days, with regional variation ranging from 51 days in North America to 75 days in South America, according to S&P data.

Why is it important to align payment terms with your peers?

By paying your suppliers earlier than your competitors, you are acting as a bank, financing your vendors and offering them 'free' liquidity. In most cases, your suppliers will use the additional liquidity to be able to accept longer terms from other customers. As a result, you are not only financing your suppliers, but indirectly your funding also your competitors.

Articles
Guides & Reports
The Working Capitalist