Owner decision
Which payment terms are turning profit into cash pressure?
Payment terms create cash pressure when payroll, inventory, tax, vendor, or delivery obligations arrive before customer cash, or when late payment accumulates faster than the contribution left on the work. Map the calendar, not only the profit-and-loss statement.
Use this now: Build a cash-timing map from deposit through delivery, invoice, expected collection, and actual collection.
Owner worksheet
Payment-term cash-gap calendar
| Check | Write down |
|---|---|
| Cash committed | Enter the dated payroll, inventory, tax, vendor, and delivery cash required to start and complete the work before customer funds arrive. |
| Invoice release | Record the invoice trigger, acceptance requirement, documentation dependency, billing owner, and earliest date the invoice can actually be issued. |
| Contractual collection | Write the deposit, milestone, retainage, net term, and stated due date, including any buyer approval that can pause the clock. |
| Actual collection | Compare due date with historical or current receipt date, record the financed days and amount, and identify the buyer or internal cause of delay. |
| Contribution at risk | Subtract financing cost, late-payment exposure, and delivery overruns from the contribution left on the work; identify the term change that closes the largest gap. |
Close the decision: Change the deposit, milestone, acceptance, or collection term that creates the largest evidenced cash gap; profit on the invoice does not close the decision.
Worked example
Illustrative order-to-cash term stress test
Illustrative only: Illustrative cash-timing example only; actual accounting, tax, contract, buyer, and finance treatment requires qualified review.
| Step | Illustrative input | Replace with your evidence | Completed test or status |
|---|---|---|---|
| Order and invoice | Illustrative $60,000 service order signed day 0; no deposit; invoice issued day 30 on net-60 terms. | Executed order, invoice date, and stated payment terms. | The contractual due date is day 90. |
| Observed collection | Comparable invoices were collected about 15 days after due date, so this case tests collection on day 105 rather than assuming day 90. | Actual cohort collection history and exceptions. | Contract term and observed behavior remain separate. |
| Cash obligations | Illustrative supplier payment $22,000 on day 15 and payroll allocation $18,000 on day 30; starting available cash $55,000. | Actual dated obligations and unrestricted cash. | Before overhead or other flows, the modeled low point is $15,000. |
| Alternative terms | Test 30% deposit on day 0 ($18,000) plus 20% milestone on day 30 ($12,000), subject to buyer acceptance and contract review. | Buyer response, revised contract, and collection evidence. | The alternative moves cash before the same obligations without claiming market acceptance. |
| Close rule | Approve revised terms only if the actual cash model preserves required payments and the customer accepts the documented milestone scope. | Final cash model, accepted term sheet, and responsible finance review. | Decision: test deposit/milestone terms; do not call booked profit available cash. |
Decision produced: Test deposit and milestone timing against the real minimum-cash path; do not change terms from this illustration without buyer, contract, and finance review.