Getting paid at 90 days: the real cost of a supplier's cash gap
When you get paid at 90 days, you are not selling to your client: you are financing them. The math is simple and it hurts: every extra 30 days of terms ties up a full month of your costs, and sustaining that capital costs margin every single month. You do not control the terms your client signs; you do control the days your own administration adds to the cycle, and those are usually one to three cuttable weeks.
The full cycle: from work done to money in the bank
The payment terms in the contract are only the last stretch. The real cycle starts when the work is done, and every earlier step adds days:
| Stretch | What happens | Who owns the days |
|---|---|---|
| Work done, ticket | The service is delivered and recorded on the daily ticket | Yours: typing up paper tickets adds days |
| Ticket, certification | The client validates the work against its records | Shared: every flagged gap means rework |
| Certification, invoice | Only an approved certificate can be invoiced | Yours: a late invoice pushes everything else |
| Invoice, due date | Contract terms run: 60, 90, sometimes more days | The contract's: you are not in charge here |
| Due date, payment | The payment enters the client's payment run | Shared: without follow-up, delays accumulate |
The distinction matters: you have little leverage over contract terms, but full control over the administrative stretches. And those usually add up to one to three weeks.
The model: how much capital each month of terms ties up
Take a typical service company: it invoices an amount F per month and its upfront costs (wages, fuel, supplies, insurance) run around 75% of F. Costs are paid today; the invoice is collected later.
| Paid at | Months of costs on the street | Working capital tied up |
|---|---|---|
| 30 days | 1 | 75% of one month's invoicing |
| 60 days | 2 | 150% of one month's invoicing |
| 90 days | 3 | 225% of one month's invoicing |
| 120 days | 4 | Three times what you invoice in a month, in costs already paid |
That capital has to be sustained with something: own cash, overdrafts, discounted checks or expensive credit. The cost formula is a single line:
Every extra 30 days of collection cost you, every month: (costs over invoicing) x (your monthly financing rate).
With costs at 75% and financing at 4% monthly, getting paid at 90 instead of 60 costs 3% of invoicing, every month. If your operating margin is 10 to 15%, that extra month of terms is eating between a fifth and a third of your profit. The values are examples: plug in your own rate and costs, the structure does not change.
The avoidable days: where they get lost and what they are worth
If a full month of terms costs points of margin, every avoidable administrative week has a concrete price. The days we see lost most often:
- Paper tickets typed up later. Days can pass between work done and ticket submitted. Each one pushes the whole cycle.
- Flagged certifications. A gap between your ticket and the client's records sends the certificate back for review: days or weeks of rework.
- The waiting invoice. An approved certificate nobody invoices the same day, an invoice waiting for the weekly admin close.
- The delay nobody chases. Overdue invoices pursued only when cash gets tight, when an early, documented claim usually shortens the delay.
Cutting 10 administrative days out of a 90-day cycle equals, in the formula above, a third of a month of financing you stop paying. And unlike contract terms, there is nobody to negotiate with: it depends on your own cycle alone.
What to automate to cut the days you do control
The implementation order comes from the same formula: first what cuts days, then what adds visibility.
- Digital field ticket. Filled in on site with time, location and photo, submitted on the spot. The typing-up days disappear, and certifications get argued less because the backing is better.
- The certificate, invoice, payment cycle on one dashboard. Every approved certificate triggers an invoice-today alert; every invoice shows its expected payment date.
- Early, systematic claims. Chasing overdue invoices stops depending on someone remembering: the system alerts the day after the due date, backing file ready.
- Projected cash. With expected payment dates and committed outflows in one place, the overdraft is requested earlier and cheaper, or not at all.
This is the second module we implement for oil & gas suppliers, and the first when cash is the most urgent pain. The result is measured in days to payment, which is the metric this guide teaches you to value.