Payment terms cash gap calculator
Days between paying suppliers and getting paid, turned into the working capital it actually ties up.
Payment timing
Average, including the late payers, not just the terms on paper.
How long you actually take, on average.
Used to convert the day gap into a cash figure.
Cash tied up
— you're financing 15 days of work before you're paid.
Uses average days across the business. Doesn't account for upfront deposits or seasonal revenue swings.
A profitable business can still run out of cash, and the reason is usually timing rather than pricing: money goes out to suppliers before it comes in from customers. The gap between those two dates, multiplied across a full order book, is real money tied up somewhere other than the bank account — even when every job on paper makes a healthy margin.
Why the gap matters more than profit
If customers take 45 days to pay on average but suppliers are paid in 30, every job is effectively being funded by the business itself for 15 days — materials and labour go out the door on day one, and the cash to cover it doesn't land for another two weeks after the invoice is settled. Run enough jobs at once and that 15-day gap becomes a permanent chunk of working capital, sitting in the gap between two payment cycles rather than in the bank. Growth makes it worse before it makes it better, since more jobs running at once means more cash parked in that same gap.
A worked example
£365,000 a year in revenue — £1,000 a day on average — with customers paying in 45 days and suppliers paid in 30: the 15-day gap ties up roughly £15,000 in working capital at any given time. Push supplier terms out to 45 days to match, or get customers paying in 30, and that same £15,000 is freed up without changing turnover or margin at all. A negative gap — suppliers paid slower than customers pay — flips the sign entirely, and effectively means suppliers are financing part of the business rather than the other way round.
What this isn't
This uses average days across the whole business — real invoices don't all land on the same terms, and a handful of very late payers can distort the average badly even when most customers pay on time. It also doesn't account for deposits taken upfront, which shrink or reverse the gap on individual jobs, or for seasonal swings in revenue that change the daily figure used to convert days into pounds. Track actual payment dates over a few months for a more reliable average than a single guessed figure.
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