How payment terms create a capital trap
Nigerian supermarkets operate on credit terms that typically range from 45 to 90 days. A brand that delivers ₦5M of stock in January will not receive payment until March or April. In the intervening period, the brand must continue to produce new stock, fund repeat deliveries as the January delivery sells through, and cover its own operating costs.
This creates a compounding capital requirement. If a brand delivers ₦5M per month to 20 accounts and collects payment on 60-day terms, it has ₦10M of outstanding receivables at any given time. As it adds new accounts, the receivable balance grows. The brand is effectively financing its retailer customers' inventory before they have paid for it, using its own capital.
Modelling the working capital requirement
| Scenario | Monthly Sales | Payment Terms | Capital Locked |
|---|---|---|---|
| Direct: tight terms | ₦10M | 45 days | ₦15M |
| Direct: standard terms | ₦10M | 60 days | ₦20M |
| Direct: extended terms | ₦10M | 90 days | ₦30M |
| Via DALA (30-day guarantee) | ₦10M | 30 days | ₦10M |
Receivables = monthly sales × payment days / 30. DALA 30-day guarantee applies from delivery confirmation.
For a brand doing ₦10M per month across 20 accounts, the difference between 90-day direct terms and DALA's 30-day cycle is ₦20M in capital that does not need to be financed. At Nigerian working capital facility rates of 25–35% per annum, that difference costs ₦5M–₦7M per year in financing cost alone.
The cascade failure pattern
Working capital stress in FMCG distribution follows a predictable cascade. The brand struggles to fund replenishment deliveries to accounts that have not yet paid for previous deliveries. Deliveries slow down. Shelf availability drops. Sales velocity falls. The buyer notices declining performance and reduces shelf allocation. The brand's revenue from the account falls further. The brand now has a listing, a relationship cost, and declining revenue, and cannot fund the replenishment that would restore performance.
This cascade is avoidable if the working capital requirement is modelled before the brand enters modern trade and funded appropriately. Many Nigerian brands enter modern trade with an optimistic view of the revenue opportunity and an underestimated view of the capital requirement, and find themselves in the cascade within three to six months of listing.
Strategies for managing the working capital gap
For brands with access to working capital facilities, the cost of financing the receivables gap should be included in the account P&L when evaluating whether a listing is financially viable. A listing that appears marginally profitable at face value may be loss-making when the cost of capital tied up in receivables is included.
For brands without large working capital reserves, using a distribution partner with a guaranteed payment cycle is the most capital-efficient route to modern trade. DALA pays partner brands on a 30-day cycle, regardless of when individual supermarket accounts settle their invoices. This means the brand's receivables exposure is capped at 30 days of revenue, and the capital required to fund distribution growth is substantially lower than under direct supermarket trading terms.
