By Kevin Van Mondfrans, PRGX Chief Product Officer
September 23, 2026
How Benchmarking Payment Terms Can Unlock Trapped Working Capital
Procurement organizations invest significant time and expertise negotiating what they pay suppliers. Price, volume commitments, rebates, service levels and contract terms are scrutinized because even small improvements can create meaningful financial value.
But one commercial lever often receives less systematic attention: when and how suppliers are paid.
Payment terms can remain unchanged for years. Different business units may negotiate independently. Similar suppliers may operate under very different terms. Early payment discounts may exist but go unused. Payment practices may not match negotiated terms. And in large supplier populations, no one may have a clear view of where the largest working capital opportunities actually exist.
The result can be significant cash trapped in supplier payment practices that have evolved over time rather than been deliberately optimized.
But addressing the issue does not mean simply asking every supplier for longer terms.
The better question is:
Where should you focus your effort to generate the greatest working capital improvement—and where are you most likely to succeed?
Start With How You Actually Pay
Before looking externally, organizations should first understand their own payment practices. Contractual terms tell only part of the story. Actual invoice and payment behavior can reveal a very different picture.
Organizations should examine questions such as:
- Are suppliers being paid according to their negotiated terms?
- Are invoices routinely being paid earlier than required?
- Are available early-payment discounts, rebates or other incentives consistently captured?
- Are different business units paying comparable suppliers differently?
- Are payment practices consistent across suppliers within the same category?
- Are exceptions becoming standard practice?
- Are current terms aligned with the company’s broader cash and working capital objectives?
This creates a baseline for understanding where working capital may already be leaking through execution—not simply through the terms themselves.
For example, renegotiating a supplier from 30-day to 45-day terms creates little value if the organization routinely pays that supplier after 22 days. Conversely, an attractive early-payment incentive may generate more economic value than extending the payment date.
Working capital optimization therefore starts with understanding behavior, not simply renegotiating contracts.
Then Ask: How Do Your Terms Compare?
Internal analysis tells you what is happening. Benchmarking provides context for determining what may be possible.
Knowing that a supplier is on 30-day terms is useful. Knowing whether similar suppliers are commonly operating at 45, 60 or another term provides an entirely different level of insight.
That comparison helps organizations move beyond generalized goals such as “improve DPO” and start asking more specific questions:
- Which suppliers appear materially out of line with relevant benchmarks?
- Where are our terms already competitive?
- Which categories show the greatest opportunity?
- Where do comparable suppliers appear to accept more favorable terms?
- Which opportunities are large enough to justify the effort required to pursue them?
PRGX approaches this by combining a client’s own spend, invoice and payment practices with industry benchmark data that PRGX has curated over many years across tens of thousands of suppliers and hundreds of industries.
The objective is not to suggest that every supplier should conform to a single benchmark. A benchmark is a reference point, not a mandate.
Supplier size, category, strategic importance, market conditions, relationship history and other factors all influence what is commercially achievable. But benchmarks can provide an important fact base for determining where an organization should look more closely.
The Biggest Gap Isn’t Always the Best Opportunity
This is where working capital optimization becomes more strategic.
Imagine two suppliers.
Supplier A represents $5 million of annual spend and appears to have terms 30 days shorter than a relevant benchmark.
Supplier B represents $100 million of annual spend and has terms only 10 days below the benchmark.
The apparent terms gap is much larger with Supplier A. But the potential cash impact may be substantially greater with Supplier B.
Now add another dimension: likelihood of success.
Perhaps Supplier B is a strategic supplier with significant negotiating leverage and little willingness to change. Meanwhile, a group of 20 suppliers representing $75 million of spend has inconsistent terms, favorable external benchmarks and upcoming contract renewals.
The highest-value strategy may be to focus on that group instead.
That is why effective working capital analysis needs to consider more than the size of the terms gap.
Organizations should prioritize opportunities based on factors such as:
- Financial impact. How much addressable spend is involved, and what would a realistic improvement mean for cash?
- Benchmark gap. How far are current terms from relevant industry or supplier reference points?
- Negotiability. How much leverage does the organization have, and what evidence supports a change?
- Timing. Is there an upcoming sourcing event, renewal, category review or other natural negotiation point?
- Supplier relationship. How strategic is the supplier, and what are the potential operational or relationship considerations?
- Alternative value. Could discounts, rebates, payment methods or other commercial changes create more value than extending terms?
The goal is to develop a portfolio of opportunities—not simply a list of suppliers with shorter payment terms.
Turn Benchmarking Into a Playbook
Analysis becomes valuable when it changes what someone does next.
Instead of handing procurement or finance a spreadsheet containing thousands of supplier comparisons, organizations can use the analysis to segment suppliers into practical actions.
Some suppliers may require no action because current terms are competitive and strategically appropriate. Others may warrant validation because the data indicates inconsistent payment behavior or uncaptured incentives.
Some may represent optimization opportunities, where the combination of spend, benchmarks and commercial conditions indicates reasonable room for improvement.
And a smaller set may become priority negotiations because they combine substantial financial impact with a strong likelihood of achieving better outcomes.
For those suppliers, the analysis can help establish:
- the current payment and commercial position;
- relevant benchmark ranges;
- a realistic target;
- the potential working capital impact;
- supporting negotiation insights; and
- the appropriate timing and approach for engagement.
That is the difference between a benchmark report and a working capital playbook.
One tells you how you compare. The other helps you decide what to do about it.
Better Terms Should Still Be Good Business
There is an important caution.
Working capital improvement should not become a blanket initiative to push suppliers to the longest possible payment terms.
Supplier relationships matter. Smaller suppliers may have different cash requirements than global strategic partners. Certain categories may face capacity constraints. In other situations, favorable early-payment discounts may deliver greater value than additional payment days.
The goal is not simply to transfer working capital pressure from the buyer to the supplier.
It is to understand the economics of each relationship and negotiate terms that make sense for both the organization and its supply base.
That makes prioritization even more important. Instead of directing procurement teams to renegotiate thousands of suppliers, organizations can concentrate their resources on the opportunities where the data suggests there is both meaningful value and a credible path to achieving it.
From Data to Better Negotiations
Most large organizations already possess tremendous amounts of supplier, invoice and payment data.
What they often lack is context.
Which practices are normal? Which are outliers? Where are incentives being missed? Where is the organization paying earlier than necessary? Which suppliers offer the greatest potential improvement? And which negotiations are most likely to produce results?
PRGX helps organizations bring those questions together by examining actual payment practices, applying relevant industry benchmarks and using our experience across supplier environments to identify and prioritize potential working capital opportunities.
The output is not simply, “Your terms should be longer.”
It is a more strategic set of questions:
- Where can we improve?
- How much could it matter?
- What evidence supports the opportunity?
- Where are we most likely to succeed?
- And where should our procurement teams spend their limited negotiating time?
Because the most effective working capital strategy isn’t about renegotiating every supplier.
It’s about knowing which suppliers are worth renegotiating—and going into those conversations with the insight to succeed. Contact PRGX to chat about ways to optimize working capital across your supplier contracts.
Payment Terms & Working Capital Optimization FAQs
- Why should procurement teams focus on payment terms, not just price? Price negotiations receive significant attention, but payment terms often go unexamined for years. How and when you pay suppliers directly impacts working capital. Optimizing payment terms can unlock trapped cash without changing what you buy or who you buy it from.
- Why is understanding actual payment behavior important before renegotiating terms? Contractual terms only tell part of the story. Organizations often pay suppliers earlier than required, miss early payment discounts, or apply inconsistent practices across business units. Understanding how you actually pay creates a baseline for identifying where working capital is already leaking through execution.
- Is the biggest payment terms gap always the best opportunity? Not necessarily. A supplier with a large terms gap but low spend may deliver far less cash impact than a high-spend supplier with a smaller gap. Effective prioritization considers financial impact, benchmark context, negotiability, timing, and supplier relationship — not just the size of the gap.
- How does benchmarking help improve payment terms negotiations? Benchmarking compares your payment terms against industry and supplier reference points. This gives procurement teams evidence-based insight into where terms are competitive, where they are outliers, and where there is realistic room for improvement — making negotiations more targeted and credible.
- Does working capital optimization mean pushing all suppliers to longer payment terms? No. A blanket approach can damage supplier relationships and overlook better alternatives. In some cases, early payment discounts or rebates may deliver more value than extending terms. The goal is to negotiate terms that make commercial sense for both the organization and its supply base.