Roughly one month of your revenue, released once. If your business bills a million dollars a year and your customers take sixty days to pay, about a hundred and sixty-four thousand dollars of your money is sitting in their accounts on any given day. Bring that to thirty days and you release about eighty-two thousand dollars, once, into your own bank. It does not repeat every month, but it does not go back either, as long as the collection days hold.
Why it feels bigger than the arithmetic
Because that money is usually the money you have been borrowing. If you carry an operating line to cover the gap between paying your people and being paid, then every day of collection you shave comes off the line, and the interest on it stops. An owner who releases eighty thousand dollars from receivables and pays down a line at nine percent has also stopped paying about seven thousand dollars a year for the privilege of financing their customers.
It is also the money that would have funded the growth you keep asking the bank for. That is the part that changes the conversation. The cash you need is often already in the business, held by other people, and the question is how to get it back rather than where to borrow more.
Two figures, kept apart
There are two different money problems in most businesses, and they should never be added together. One is a flow: the margin that leaks every year through waiting time, idle equipment, turnover and work priced too cheap. That recurs. The other is a stock: the cash trapped in receivables and inventory, less what you owe suppliers. That is released once when collection days come down.
Say them in two parts. A flow and a stock look like one big number when you add them, and the big number is wrong.
Try this
Pull your ten biggest customers and write beside each the days they actually take to pay, not the terms on the invoice. Then rank them. The two or three at the bottom are usually where the month of revenue is hiding, and a conversation with those two or three is a smaller job than a conversation with everyone.
See your own figure
The Profit and Cash model walks the same money down two paths, the statements and the bank, and shows what moving collection from sixty days to thirty releases in cash. Free, no sign-up.
More questions owners ask
- Why is my business profitable but I never have cash?
- Which part of my business should I fix first?
- Why do I keep hiring for the same job?
- What should a small business measure every week?
- Is my business growing, or just getting busier?
- How do I know if a customer is costing me money?
- Why does every decision still come back to me?