Cash & Capital

Receivables & Payment Terms Cash Impact

Calculate how much cash your current payment terms tie up in receivables, and the real dollar impact of tightening them.

Annual revenue$/yearCurrent payment termsdaysTarget payment termsdays

Cash freed up by tightening terms$49,315.07

Cash tied up (current terms)$73,972.6

Cash tied up (target terms)$24,657.53

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ReferenceDeposits, Retainage, and Payment TermsThree separate contract terms, receivables timing, deposit size, and retainage, each tie up cash in a different, quantifiable way. Tightening payment terms alone from 45 to 15 days frees $49,315 in cash on $600,000 of annual revenue.

Methodology

Formula: Daily revenue = annual revenue / 365. Cash tied up = daily revenue × payment terms in days. Cash freed up = cash tied up at current terms minus at target terms.

Assumption: Assumes steady, evenly-spread revenue across the year.

Limitation: A heavily seasonal business’s actual receivables balance will swing more than this average suggests.