The Hidden Cash Drain of 60-Day Payment Terms

Jan de Vries · 2026-10-20

You've just landed a big UK contract. The revenue looks great on paper. But before you pop the champagne, ask yourself: how much cash will you need to front before the customer pays? Because a 60-day payment term can quietly eat your runway. Let's say you're a scale-up selling software to larger organizations. Your new customer is a household name, and they've offered a contract with 60-day payment terms. The numbers are attractive. But here's the catch: you need to pay wages, suppliers, and taxes long before that check arrives. Winning the account and financing the account are two very different jobs. ### The £400,000 question Let's do a simple illustration. Suppose your annual UK credit sales are £4.8 million, spread evenly through the year. At 30 days from invoice to cash, your average receivables would be around £395,000. At 60 days, that jumps to about £789,000. That extra 30 days ties up roughly £395,000 in unpaid invoices—without adding a single pound of revenue. The math is straightforward: annual credit sales ÷ 365 × extra days. In this case, £4.8 million ÷ 365 × 30 = £394,521. If only part of your customer base changes terms, use that segment's sales, not your whole turnover. But this isn't a precise funding requirement. It's an estimate of additional receivables. Your existing cash, supplier terms, deposits, and delivery costs all affect how much you actually need to finance. And if you're growing fast, a steady annual average can be misleading. Model your expected invoices and receipts month by month to get a clearer picture. The key point: that £395,000 isn't lost—it's just unavailable for payroll or your next product release while you wait. As the British Business Bank puts it, rising profit doesn't prevent a cash shortage when growth demands working capital. ### Price the timing, not just the product Payment terms are part of your commercial offer, not an afterthought for finance. If winning a contract means financing your customer for longer, make that cost visible alongside gross margin and acquisition cost. In our illustration, an assumed annual funding cost of 10% on the extra £395,000 would be about £39,500 a year. That's a modeling assumption, not a quote—fees, eligibility, and facility limits could change the actual cost. You don't necessarily need to raise your headline price. Consider a setup fee payable before work starts, milestone billing, or a deposit. These options can reduce the amount you finance. But 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 days gained. Don't assume faster payment is always worth any discount. The goal is to win a contract you can afford to deliver. ### Check the customer's track record Sixty-day terms and late payment are not the same thing. A customer paying exactly on day 60 has used the agreed credit period. One paying on day 75 adds another 15 days of uncertainty. For many large UK companies, you can check published payment-practices reports through the government's reporting service. These reports show measures like average days to pay and the percentage of invoices paid late. Use them to gauge how reliable your customer is. Before signing, put the collection date into your cash forecast and compare it with when wages, suppliers, and taxes are due. Then stress-test: what if payment takes longer? A profitable contract can still require funding, and a revenue target doesn't supply it. So next time you're negotiating a big contract, don't just look at the top line. Look at the timeline. Because cash flow is the lifeblood of your startup—and a 60-day term can drain it fast.