Walmart says to Proctor & Gamble: “We’d like a hundred million boxes of Tide.”
The invoice goes out with the product but it’s due in 30 days, not upon receipt.
If Walmart sells all of the product in 7 days, then they’ve got 23 days to spend all of that new cash on new ads, more product, or new people.
They get the money first and THEN they spend it.
They get the money first, which turns into more and more money, and then finally, 23 days later, they pay only the price tag.
This is the basic principle of cash flow, and almost no one outside of business thinks of it.
And at nearly any stage of business, especially early on, cash is oxygen.
Whether you’re using the debt on your house to buy a new asset or bootstrapping a new project by yourself, it’s important to always play the game with this advantage.
If you’re going to build something strong, sustainable or fulfilling, you’re going to need to shift the odds in your favor early on.
2 Minute Action:
Next time you have to pay ANYthing, ask for payment terms—even if it’s not on the menu.
You might be surprised at how this little trick can change the cash position of your project.