The Hidden Cash Drain in 60-Day Payment Terms

Jan de Vries · 2026-10-20

A big UK contract can look like a dream come true. The revenue is attractive, the logo is impressive, and your team is already planning the celebration. But before you pop the champagne, there's a less visible question you need to answer: how much cash will you need to find before the customer actually pays? ### The cash flow trap Let's say a large UK customer offers you a contract with 60-day payment terms. That means you deliver the work, send the invoice, and then wait two months for the money. In the meantime, you still have to pay wages, suppliers, and taxes. If you haven't planned for that gap, a profitable contract can quickly turn into a cash crunch. This is especially true for founders selling services or software to larger organizations. The customer may have plenty of money, but their procurement process might require a purchase order, an approved invoice, and a specific payment run. Winning the account and financing the account are two very different jobs. ### Thirty more days can tie up nearly $500,000 Let's put some numbers to this. Imagine a company with annual UK credit sales of $6 million, spread evenly through the year. At 30 days from invoicing to cash, average receivables would be roughly $493,000. At 60 days, they'd be about $986,000. That extra 30 days ties up approximately $493,000 in invoices—without adding a single dollar of annual revenue. The calculation is simple: annual credit sales divided by 365, multiplied by the extra days to payment. Here, that's $6 million ÷ 365 × 30 = $493,151 (rounded). If only part of your customer base changes terms, use that part's sales, not the whole company's turnover. But remember, this is an estimate of additional receivables, not a precise funding requirement. Cash you already hold, supplier terms, deposits, and the timing of delivery costs all affect how much you actually need to finance. Fast growth can also make a steady annual average misleading. Model your actual expected invoices and receipts month by month before deciding how much liquidity you need. The key distinction: that $493,000 hasn't been lost. It's just unavailable for payroll or the next product release while you wait. As the British Business Bank points out in its cash-flow guidance, rising profit doesn't prevent a cash shortage when growth requires working capital. ### Price the timing as well as the product Payment terms are part of your commercial offer, not a minor detail for finance to discover after the sale. If winning a contract means financing the customer for longer, make that cost visible alongside gross margin and acquisition cost. Using our illustration, an assumed annual funding cost of 10% on the additional $493,000 would be about $49,300 a year. That rate is a modeling assumption, not a financing quote. Fees, eligibility, concentration limits, and the available facility could change the actual cost substantially. The answer doesn't have to be a higher headline price. You could negotiate a setup fee payable before work starts, milestone billing, or a deposit to reduce the amount you finance. These are commercial options, not terms every enterprise buyer will accept. They must fit your product and the customer's purchasing process. An early-payment discount also has a cost. Compare that cost against the cash released and the number of days gained, rather than assuming faster payment is always worth any discount. The goal is to win a contract you can afford to deliver. ### Check the customer's record, not just its policy Sixty-day terms and late payment are not the same thing. A customer paying exactly on day 60 has used the agreed credit period. A customer paying on day 75 has introduced another 15 days of uncertainty. For many large UK companies, founders can check published payment-practices reports through the government's reporting service. These reports show measures like the average time taken to pay invoices and the proportion of invoices paid late. That data can help you predict how long you'll actually wait for your money. > "Cash flow isn't just about how much you earn; it's about when you earn it." So before you sign that big contract, put the collection date into your cash forecast and compare it with when wages, suppliers, and taxes must be paid. Then stress-test what happens if payment takes longer. A profitable contract can still need funding, and a revenue target doesn't supply it. In short: winning the account is only half the battle. Financing it is the other half. Plan for both, and you'll be able to celebrate that contract without losing sleep over your bank balance.