Understanding how long your customers take to pay could unlock a hidden source of cashflow in your business. We call what you're owed Accounts Receivable. AR arises because customers do not expect to pay for their purchases immediately. These unpaid bills are a valuable asset that companies expect to turn into cash in the near future. The delay between the date of sale and the date at which you are paid is called the accounts receivable period.

Having AR is part of doing business since you are unlikely to be able to retain customers you don't offer credit to - they will trade with another, more generous supplier. However, AR is also know as a carrying cost. This means that whilst you do not have the cash that you're owed, you're not reinvesting it or making payments that you are obliged to make i.e. the opportunity cost of not having that cash is costing you lost profits, unearned interest or possibly interest you will have to pay on higher debts.

You need to decide where to strike your accounts receivable period so it is balanced between your commercial competitiveness and own requirement for cashflow. All too often, supplying companies agree a number of credit days with their purchasing clients which are subsequently broken.

Use our tool to understand what your current accounts receivable period is. And if your customers paid you in the time period you hope, what would that do to the cash in your bank account?