Getting Paid Faster: Terms, Deposits and Collections
Short Answer: Money you've billed but not collected is cash your business is lending to customers. You get it back sooner by shortening terms, taking deposits before you buy materials, and following up on every invoice on a fixed schedule. The cash freed is roughly your monthly billing on terms, times the days you cut, divided by 30. Discounts for early payment work too, but they cost far more than they look.
Owners usually notice slow payers the week payroll is due. By then the only options are a credit card or a phone call. The better time to deal with it is when you set the terms, because the terms decide how much of your revenue is sitting in other people's bank accounts at any moment.
What Is Accounts Receivable, and Why Does It Cost Cash?
Accounts receivable is the money customers owe you for work you've already billed. It counts as revenue on your profit and loss statement, so the business looks profitable. But you've already paid the crew and bought the materials to do that work. Until the customer pays, the business is covering those costs out of its own cash.
The amount tied up follows a simple rule:
Cash tied up ≈ monthly billing on terms × days to collect ÷ 30
Cut the days and the cash comes back to you, permanently, for as long as you keep the new terms.
A Worked Example: Commercial Clients on 30-Day Terms
Take a hypothetical landscaping company, Greenline Landscaping, with about $520,000 a year in revenue. Residential clients pay on completion. Commercial clients pay 30 days after the invoice. In April, Greenline billed $28,000 to commercial clients, and none of it arrived until May. Along with a mower purchase and materials bought ahead, that gap is why the company's bank balance fell from $30,000 to $4,500 in a profitable month (the full walk is in Profit Is Not Cash).
Here is what different payment speeds mean at $28,000 a month of commercial billing:
| How fast commercial clients pay | Cash tied up in receivables |
|---|---|
| 45 days (30-day terms, paid late) | $42,000 |
| 30 days (terms, paid on time) | $28,000 |
| 15 days (15-day terms) | $14,000 |
Two things stand out. Late payment costs as much as the terms themselves: clients who drift to 45 days tie up another $14,000. And moving to 15-day terms would have left about $14,000 more in the bank at the end of April, taking the ending balance from $4,500 to about $18,500.
Which Levers Speed Up Payment?
Shorter Terms
Terms are negotiable. Many small commercial clients accept 15-day terms if you ask at renewal, especially for recurring maintenance with a fixed monthly price. Larger clients with set payment cycles may refuse. Ask anyway, and write the terms into the contract and on every invoice.
Deposits Before You Buy Materials
For project work, a deposit covers the costs you pay before the job starts. Suppose Greenline quotes a $12,000 commercial install. At the company's 42% gross margin on installs, about $6,960 of that is direct cost: plants, stone, crew time. A 30% deposit, $3,600, collected when the client signs, pays for the materials before they're ordered. Deposits on project work are common across the trades, and clients rarely push back on them for jobs this size.
A Routine for Every Invoice
Most late payments are forgotten invoices. A routine collects more of them than a hard conversation does:
- Invoice the day the work is done, not at month end. A week's delay in sending adds a week to collecting.
- Put the due date, the amount and how to pay at the top of the invoice.
- Send a reminder a few days before the due date, another the day after, and call at two weeks late.
- Decide in advance when work pauses for an unpaid account, and say so in the contract.
Early-Payment Discounts
A common offer is "2/10, net 30": the client can take 2% off if they pay within 10 days instead of 30. It works, but it's expensive. Giving up 2% to get your money 20 days sooner works out to an annual rate of about 37%. If Greenline's commercial clients paid April's invoices early, roughly $18,700 of them would have landed in April, costing about $373 in discounts for that month. That's a real improvement in the bank balance, and at 37% a year it's among the priciest money a small business can raise. A shorter term or a deposit usually gets you most of the way for free.
What to Look For
- Days to collect against your terms. Divide what customers owe you by your monthly billing on terms and multiply by 30. If the result is well above your terms, your follow-up is the problem, not the terms.
- Receivables over 60 days old. These are the invoices most likely never to be paid. Chase them first.
- Receivables growing faster than revenue. If sales grow 10% and receivables grow 30%, customers are slowing down, and your cash will feel it before your profit does.
What a Finance Consultant Would Do Next
A consultant looking at Greenline would start with the commercial contracts up for renewal and price the move to 15-day terms, add a deposit clause to every install quote, and check how many days commercial clients actually take against the 30 on the invoice. Then they'd run the new collection speed through the season to see how much of April's squeeze it removes.
That analysis is what Occam's Model runs on your own books. It shows how customer payment timing moves your cash from revenue down to the bank, and lets you test a change in how fast you get paid before you ask a single client. When you need extra help, an expert can review it with you.
Common Questions
How do I get clients to pay invoices faster?
Invoice the day the work is done, put the due date at the top, and follow up on a fixed
schedule. Then shorten terms at renewal and take deposits on project work. Most late invoices
are forgotten, so the routine does most of the work.
Should I ask for a deposit?
For any job where you buy materials or book crew time before the client pays, yes. A deposit
that covers the direct costs means the business never funds the job out of its own cash.
Is net 15 better than net 30?
For your cash, yes. Each month of billing on 15-day terms ties up half as much as on 30-day
terms. Whether a client accepts depends on the client; recurring service clients often do.
Are early-payment discounts worth it?
Only if you need the cash badly and have no cheaper way to get it. A 2% discount for paying 20
days early costs about 37% a year.