Where’s the Money? Q1 Cash Flow for Suppliers

Late January is when many supplier teams have the same quiet moment.

You look at Q4 shipments and sales. You feel good about demand. Then you look at the bank balance… and it doesn’t match the story.

That gap isn’t bad selling. It’s netting.

It’s the reality that in retail, revenue can be real and still not be cash—at least not yet.

The late-January trap: “We sold it” vs. “We got paid”

Most suppliers aren’t surprised by a single big disaster. They get squeezed by a hundred small ones:

• short pays tied to pricing or promo terms

• compliance chargebacks

• returns and unsaleables

• post-audit claims that show up long after the shipment

And the worst part? These items tend to hit after the celebration. The sale happens in December. The cash impact lands in January.

One industry analysis circulated via the Return Value Chain Federation describes customer deductions as a persistent “plague on profits,” estimating that, depending on industry, deductions can reach 5%–15% of revenue.

That same paper uses a simple illustration: a $1B retail-channel supplier with a 10% operating margin and a “typical” 9.7% deduction rate (about $97M)—with a meaningful portion potentially questionable.

You don’t need those exact numbers to be true for your business for the message to land: this is not small money.

Why it keeps getting harder in 2026

Retailers have invested heavily in technology and automated processes, and suppliers feel it as less flexibility and more system-driven enforcement. The same industry paper notes that chain retailers’ technology investments have made compliance requirements tougher—especially for smaller suppliers who can’t “comply perfectly” with every requirement.

Translation: the distance between “we shipped it” and “we got paid correctly” is widening if your process can’t keep up.

Returns make the cash gap worse

January also brings the returns wave, and it’s big.

The National Retail Federation (NRF) estimates that 15.8% of annual retail sales will be returned in 2025—about $849.9 billion—and that 19.3% of online sales will be returned.

Even if your category isn’t return-heavy, returns often cascade into downstream costs: handling fees, unsaleables, compliance disputes, and (you guessed it) deductions.

What a “short pay” really does

A short pay occurs when a customer remits less than the invoiced amount—whether due to a dispute, a pricing discrepancy, or an administrative mismatch.

That sounds minor until you realize what it breaks:

• cash forecasting

• accrual accuracy

• working capital planning

• team time (because every short pay needs a story, proof, and a decision)

Now layer that onto payment cycles. Many finance teams treat days sales outstanding (DSO) as a heartbeat metric; one cross-industry benchmark cited by eTactics is a median DSO of 56 days.

When deductions stack on top of slow cash conversion, late January can feel like you’re running a business on delay.

A fictional scenario (clearly fictional)

A supplier closes December with a strong finish. Invoices look great—until remittances start landing.

• $8.0M billed in late December

• $640K shows up as short pays and deductions (8%)

• the disputes are spread across three portals, a dozen emails, and two internal spreadsheets

• leadership wants a clean Q1 forecast by Friday

Nobody did anything “wrong.” But the organization has no single view of the truth—so cash feels random.

That’s the late-January squeeze.