Cash tied up in customers: how cutting debtor days frees money
Every day customers take to pay is cash you have earned but cannot use. For a business turning over £1.2 million, fifteen days is worth about £49,000.
Debtor days measure how long, on average, customers take to pay. A business turning over £1.2 million with £197,000 owed to it has debtor days of 60. Get that to 45, and around £49,000 of cash comes back into the bank, without a single extra sale.
Show the data
| 60 days | £197,000 |
|---|---|
| 45 days | £148,000 |
| 30 days | £99,000 |
Where the days come from
- Invoices sent late, or with errors that delay approval.
- Terms that are longer than they need to be.
- No routine for chasing: reminders go out when someone remembers.
- A few slow customers who are never challenged.
Bringing them down
Invoice on the day the work is done, with the purchase order number and the right contact. Offer easy ways to pay, including links in the invoice. Send reminders before and on the due date, then on a fixed schedule. For business customers, you have a legal right to charge statutory interest on late payments.
Do the same calculation for stock and for what you owe suppliers. Together they show how much cash the business needs just to keep trading.
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This insight is general information, not advice for your circumstances. Talk to us before acting on it.