Surviving the "Net 60 Squeeze": How Manufacturers Can Fix Cash Flow Gaps

You shipped $200,000 worth of product to a major distributor. The invoice is Net 60, which means payment is due in 60 days. But your raw materials supplier wants payment in 30 days. Your payroll is due every two weeks. Your equipment loan payment is due monthly.

You're funding 30 days of operations with your own cash while waiting for payment you've already earned. This is the Net 60 squeeze—manufacturers caught between long payment terms from distributors and short payment terms from suppliers.

The problem isn't the payment terms themselves. Large distributors have the power to dictate terms, and Net 60 is standard in manufacturing. The problem is managing cash flow when payment is delayed.

Here's how to survive the Net 60 squeeze and fix cash flow gaps without changing payment terms.

The Distributor Problem: Understanding the Power Imbalance

Large distributors have leverage. They buy in volume, so they can demand favorable terms. Net 60 (or even Net 90) is common. You can't change these terms without losing the account.

Why Distributors Demand Long Terms:

• Cash Flow Management: Distributors want to sell product before paying for it
• Leverage: They know you need their volume, so they can dictate terms
• Industry Standard: Net 60 is expected in manufacturing, so everyone accepts it

What This Means for You:

• You're financing your customers' inventory
• Cash flow gaps are inevitable
• You need strategies to manage these gaps, not eliminate them

The Reality:

You can't eliminate Net 60 terms. But you can manage them better. The goal isn't to change payment terms—it's to ensure payment arrives on time (not late) and to forecast cash flow accurately so you can plan for gaps.

Pre-Due Reminders: Ensuring Paperwork is Correct

The biggest cause of delayed payment isn't unwillingness to pay—it's paperwork problems. Invoices get lost, purchase orders don't match, delivery receipts are missing. By the time you discover the problem, payment is already delayed.

The Pre-Due Strategy:

Send reminders before the invoice is due. Not to ask for early payment, but to ensure everything is correct.

7 Days Before Due Date Reminder:

Subject: Pre-Payment Verification: Invoice #[INVOICE_NUMBER]

Hi [DISTRIBUTOR_NAME],

Invoice #[INVOICE_NUMBER] for [AMOUNT] is due in 7 days ([DUE_DATE]).

To ensure timely payment, please verify:

• Invoice matches your purchase order
• Delivery receipt is on file
• All paperwork is complete

If anything is incorrect or missing, please let me know immediately so we can resolve it before the due date.

Payment details: [PAYMENT_INFORMATION]

Thanks, [YOUR_NAME]

Why This Works:

• Prevents Disputes: Catches problems before they delay payment
• Shows Professionalism: Demonstrates you're organized and proactive
• Reduces Friction: Makes it easy for distributors to pay on time
• Builds Relationships: Shows you care about their process, not just payment

The Psychology:

Distributors appreciate this approach. You're not nagging—you're helping them pay on time. Most payment delays are administrative, not financial. This reminder solves administrative problems before they become payment delays.

Promise-to-Pay Tracking: Better Than Due Dates

Net 60 terms mean payment is due in 60 days. But what if your distributor says, "We'll pay on day 75"? The due date says 60, but the promise says 75. Which do you trust?

The Problem with Due Dates:

Due dates are theoretical. They assume everything goes perfectly. In reality:

• Paperwork takes time to process
• Approvals take time
• Payment runs happen on specific days
• Distributors have their own cash flow cycles

The Solution: Promise-to-Pay Tracking

When a distributor promises to pay on a specific date, track that date. It's more accurate than the due date because it reflects reality.

How Promise-to-Pay Works:

1. Distributor Makes Promise: "We'll pay on March 15" (even though due date is March 1)
2. You Log the Promise: In CollectLean, set Promise-to-Pay Date = March 15
3. System Tracks It: CollectLean sends reminder on March 15, not March 1
4. Cash Flow Forecast Updates: Your forecast reflects the actual payment date

Why This Matters for Cash Flow Forecasting:

If you're forecasting cash flow based on due dates, you'll be wrong. You'll expect payment on day 60, but it arrives on day 75. That 15-day gap creates a cash flow problem.

If you forecast based on promise-to-pay dates, you're more accurate. You know payment is coming on day 75, so you plan accordingly. You secure a line of credit for those 15 days, or you delay expenses, or you use cash reserves.

Example:

Invoice: $200,000 Due Date: March 1 (Net 60) Promise-to-Pay Date: March 15

Forecasting with Due Date:

• Expect payment: March 1
• Plan expenses: Based on March 1 payment
• Reality: Payment arrives March 15
• Problem: 14-day cash flow gap

Forecasting with Promise-to-Pay Date:

• Expect payment: March 15
• Plan expenses: Based on March 15 payment
• Reality: Payment arrives March 15
• Solution: No surprise gap

The Key Insight:

Promise-to-pay dates are more accurate than due dates for cash flow forecasting. Track them, use them for planning, and you'll avoid surprise cash flow gaps.

Cash Flow Forecasting: Planning for Gaps

You can't eliminate Net 60 terms, but you can plan for them. Accurate cash flow forecasting lets you see gaps coming and prepare for them.

The Forecasting Process:

1. List All Invoices: All outstanding invoices with due dates (or promise-to-pay dates)
2. List All Expenses: Payroll, materials, loans, overhead—everything you need to pay
3. Match Timing: When will money come in? When does it need to go out?
4. Identify Gaps: Where are the gaps? How big are they? How long do they last?
5. Plan Solutions: Line of credit? Delay expenses? Use reserves?

Using CollectLean for Forecasting:

CollectLean tracks all invoices, due dates, and promise-to-pay dates. It can generate cash flow forecasts showing:

• Expected payments by date
• Cash flow gaps
• Days until next payment
• Total outstanding receivables

This visibility lets you plan for gaps instead of reacting to them.

Example Forecast:

Week 1:

• Expenses: $50,000 (payroll, materials)
• Payments Due: $0
• Gap: -$50,000
• Solution: Use cash reserves

Week 2:

• Expenses: $30,000
• Payments Due: $0
• Gap: -$30,000
• Solution: Use cash reserves

Week 3:

• Expenses: $50,000
• Payments Due: $200,000 (promise-to-pay date)
• Net: +$150,000
• Solution: Replenish reserves

The Value:

With this forecast, you know Week 1-2 will be tight, but Week 3 brings payment. You can:

• Secure a short-term line of credit for Week 1-2
• Delay non-critical expenses until Week 3
• Use cash reserves knowing they'll be replenished

Without the forecast, Week 1-2 are stressful surprises. With the forecast, they're planned for.

Multi-Channel Communication: Reaching Distributors

Distributors are busy. They're managing inventory, coordinating shipments, dealing with customers. Email reminders get buried. You need to reach them where they pay attention.

The Email Problem:

• Distributors receive hundreds of emails daily
• Invoice reminders get marked "read later" and forgotten
• Spam filters sometimes catch them
• They feel impersonal

The Multi-Channel Solution:

Use multiple channels to reach distributors:

Email: Professional, documented, works for most. Use for initial reminders and formal communications.

SMS: Immediate, personal, hard to ignore. Use for urgent reminders or distributors who don't respond to email.

Phone Calls: Personal, direct, effective for escalations. Use for distributors who are significantly overdue or need special handling.

Customer Portal: Self-service, convenient, reduces friction. Distributors can view invoices, track payment status, and download documents without contacting you.

Why Multi-Channel Works:

Different distributors respond to different channels. Your high-volume distributor might ignore email but respond to SMS. Your detail-oriented distributor might prefer the customer portal. Your problem distributor might need a phone call.

Automation lets you use the right channel for each distributor at the right time. Set up rules: if email reminder gets no response after 7 days, send SMS. If SMS gets no response after 3 days, escalate to phone call.

Dispute Management: Handling Short Payments and Claims

Manufacturing invoices often get short-paid. "Damaged goods," "Short shipment," "Quality issues." Handling these disputes manually delays payment and creates cash flow gaps.

The Dispute Problem:

• Disputes delay payment
• Manual dispute handling is time-consuming
• Unresolved disputes become write-offs
• Cash flow gaps widen while disputes are pending

The Automated Solution:

Automated dispute workflows handle disputes systematically:

1. Dispute Opened: Distributor opens dispute via portal or email
2. Reminders Paused: System automatically pauses collection reminders
3. Notification Sent: Your team is notified of the dispute
4. Resolution Tracked: Dispute is tracked through resolution
5. Reminders Resumed: Once resolved, reminders resume if payment is still due

Why This Works:

• No Accidental Reminders: System won't send reminders while dispute is open
• Faster Resolution: Disputes are tracked and resolved systematically
• Better Relationships: Distributors feel heard, and disputes are handled professionally
• Documentation: All disputes are documented for future reference

Common Manufacturing Disputes:

Short Payment: Distributor pays less than invoice amount. System tracks the short payment, you investigate, resolve, and collect the difference.

Damaged Goods: Distributor claims damage. System pauses reminders, you investigate, resolve, and adjust invoice or collect payment.

Quality Issues: Distributor claims quality problems. System tracks the claim, you investigate, resolve, and adjust or collect.

Automation ensures disputes don't delay payment unnecessarily. They're handled quickly, professionally, and systematically.

ERP Integration: Working with Your Existing Systems

Manufacturers use heavy ERP systems—SAP, Oracle, NetSuite, Sage. These systems handle production, inventory, and accounting. Your AR automation needs to work with them, not replace them.

The Integration Approach:

CollectLean integrates with major ERP systems, acting as a communication layer on top of your existing infrastructure:

• Invoice Data: Pulls invoices from your ERP automatically
• Payment Updates: Updates ERP when payments are received
• Customer Data: Syncs customer information bidirectionally
• Real-Time Sync: Changes in either system reflect in the other

What This Means:

You keep your ERP for production and accounting. CollectLean handles collections and communication. The systems work together seamlessly.

Benefits:

• No Double Entry: Data syncs automatically
• No System Replacement: Keep your existing ERP
• Better Collections: Specialized AR automation improves collections
• Unified View: See everything in one place

Building Your Net 60 Survival Strategy

Step 1: Set Up Pre-Due Reminders

Send reminders 7 days before due date to verify paperwork. This prevents delays caused by administrative issues.

Step 2: Track Promise-to-Pay Dates

When distributors promise specific payment dates, track them. Use these dates for cash flow forecasting instead of due dates.

Step 3: Forecast Cash Flow

Use promise-to-pay dates to forecast cash flow. Identify gaps early and plan for them.

Step 4: Use Multi-Channel Communication

Reach distributors through email, SMS, phone, and customer portals. Use the right channel for each distributor.

Step 5: Automate Dispute Management

Handle disputes systematically. Pause reminders during disputes, resolve quickly, resume collections after resolution.

Step 6: Integrate with Your ERP

Connect CollectLean to your ERP system. Keep your existing infrastructure, add specialized collections automation.

The Bottom Line

You can't eliminate Net 60 terms. But you can manage them better:

• Pre-due reminders prevent administrative delays
• Promise-to-pay tracking improves cash flow forecasting accuracy
• Multi-channel communication reaches distributors where they pay attention
• Automated dispute management resolves issues quickly
• ERP integration works with your existing systems

The result: payment arrives on time (not late), cash flow gaps are planned for (not surprises), and you survive the Net 60 squeeze without changing payment terms.

Start with pre-due reminders. Then track promise-to-pay dates. Build cash flow forecasts. Add multi-channel communication. Automate dispute management. Integrate with your ERP.

In 30 days, you'll have a system that manages Net 60 terms effectively, ensuring timely payment and accurate cash flow forecasting.

Ready to survive the Net 60 squeeze? CollectLean integrates with NetSuite, Sage, and other ERP systems, tracks promise-to-pay dates for accurate cash flow forecasting, and automates pre-due reminders to prevent payment delays. Start a free 14-day trial and see how automation can help you manage Net 60 terms effectively.