Quick answer
Days to get paid is the average time between sending an invoice and receiving the money. Multiply it by your daily costs and you see how much cash you are lending your customers. Shortening it by invoicing sooner, setting clear terms, taking deposits and chasing early is often cheaper and faster than borrowing.
Key points
- Days to get paid x daily costs = the cash you effectively lend your customers.
- Measure it from your own invoices, not from your payment terms.
- Invoice sooner, state terms clearly, take deposits and chase on day one of lateness.
- A shorter number means a smaller working-capital gap and less need to borrow.
Most owners watch sales. Some watch margins. Very few watch the number that quietly decides whether either of those turns into cash: the days between sending an invoice and seeing the money. It is rarely on a dashboard and almost never in the pitch, yet it sets the size of the working-capital gap more than anything else you can change.
What is days to get paid?
It is the average time it takes your customers to pay you, measured from the day you invoice (or deliver) to the day the money arrives. If you sell for cash on the spot, it is zero. If you invoice trade customers on 30-day terms and they pay on average at day 41, then 41 is the number, not 30.
That distinction matters. Terms are what you ask for. Days to get paid is what happens.
Why does it matter so much?
Because every day is a day of costs you carry on your customers’ behalf. Imagine your costs run at $1,000 a day. If customers pay in 10 days, you need about $10,000 of your own cash to bridge the wait. If they pay in 45 days, you need about $45,000. Same business, same sales, thirty-five thousand dollars different.
An illustration, using no real business. A signwriting firm has monthly costs of $36,000, or roughly $1,200 a day. Its commercial customers pay on average in 38 days. The float is about $45,600. If the firm brought the average down to 28 days by invoicing on completion and chasing earlier, the float would fall to around $33,600, freeing about $12,000 without a single extra sale.
You can try your own numbers in the Dough gap calculator.
How do I measure it for my own business?
Two simple ways.
The sampling method. Take your last ten to twenty paid invoices. For each, count the days from invoice date to the day the money arrived. Average them. Separate cash customers and credit customers if the mix is very different.
The ratio method. For a given period, divide your average accounts receivable (money owed to you) by your credit sales in that period, and multiply by the number of days. Accounting software often reports this as debtor days.
Either way, also look at the spread. An average of 35 days can hide a handful of customers at 70. The slow few are usually where the work is.
Why do customers pay late?
Reasons vary, and the fix depends on which applies.
- They do not know when it is due. The invoice is unclear or the terms buried.
- Their process is slow. Large organisations often pay on fixed runs, so a missed run means another month.
- They are testing you. Some customers pay as late as they are allowed to get away with.
- They are in trouble. Late payment can be an early warning of cash trouble on their side.
- There is a dispute. The invoice is unpaid because something is unresolved.
Business.gov.au notes that setting payment terms and invoicing correctly can help you get paid on time. That sounds obvious, but a surprising number of late payments trace back to unclear invoices.
What shortens the number?
Work through these in order of ease.
Invoice sooner. Send the invoice when the job is done, not at month-end. Automate it where you can. Business.gov.au lists automating invoicing and sending invoices sooner among its cash-flow techniques.
Make the terms impossible to miss. Put the due date, payment methods and late-payment conditions on every invoice and contract. Business.gov.au says payment terms should cover accepted payment methods, when payment is due, whether credit is offered and how overdue payments are handled.
Make it easy to pay. Offer bank transfer details, a payment link or card payments. The fewer steps, the faster the money.
Take deposits. For larger or longer jobs, ask for a deposit upfront or progress payments. It moves cash forward and filters out customers who are not serious.
Offer an early-payment incentive if the maths works, such as a small discount for payment within a week.
Chase on day one. A friendly reminder the day after the due date prevents most slippage. Escalate calmly: a phone call at day seven, a written notice at day fourteen, a letter of demand later. Our page on funding when customers pay late has a full routine.
Check customers before you give credit, and cap credit limits where the risk is high.
What if the slow payer is a big customer?
Have the conversation. Many large customers will agree to a payment schedule or an earlier run if asked politely and given a reason. If they will not, the float is a cost of doing that business, and the right response is to price it in and fund it deliberately. Do not leave it unplanned.
Concentration is a risk. If one customer is a large share of your revenue and pays slowly, the business has little room to move. Work on a second large customer, and keep the first one comfortable.
When does borrowing to bridge the wait make sense?
When the customers are good for it, the wait has a visible end and the repayments fit. A short-term loan sized to the unpaid invoices is a common shape. If the wait is permanent, a line of credit may fit better. For trading businesses, unsecured funding is typically $5,000 to $500,000, sized on turnover and bank statements.
Borrowing does not fix the habit, though. It only funds it. If you borrow to bridge a 45-day wait, work in parallel on making it 30.
A simple monthly routine
Once a month, spend twenty minutes on this:
- List every unpaid invoice with its age.
- Highlight those over terms.
- Contact each one, with a plan for the largest.
- Recalculate your average days to get paid.
- Note the trend. Falling is good; rising is a warning.
Business.gov.au suggests regular reviews of financial health as part of sound practice. This one is quick, and it can be worth more than a month of extra sales.
What does a realistic improvement plan look like?
Suppose your average is 42 days against terms of 30. A reasonable plan over a quarter might look like this.
- Week one: measure the number properly, and list your ten slowest accounts.
- Week two: revise your invoice template so the due date and payment details are the first things a reader sees. Switch on automatic reminders if your software has them.
- Week three: phone the three slowest accounts. Ask what holds up payment. Often it is a missing purchase order number or an approver on leave, and it can be fixed in a day.
- Weeks four to eight: introduce deposits on new larger jobs. Offer a small discount for payment within seven days to a few willing customers and see whether it moves behaviour.
- Week twelve: re-measure. A fall from 42 days to 35 is a realistic target, and for a business with $1,000 of daily costs it frees about $7,000 in working capital.
The point is not perfection. It is steady pressure in the right direction, backed by a number you can track.
How does this connect to funding?
Lenders pay attention to how a business treats its receivables. A tidy, falling days-to-get-paid number shows control. A rising one is a warning. If you apply for funding, an aged debtors list and a short note on what you are doing to tighten collections tell a lender that the gap is being managed, not just financed. That makes the conversation shorter and the outcome better.
Where to go next
Knowing the number is half the job. If you have worked out that your wait is costing you more than your cash can carry, tell us about it. A lending specialist reads each enquiry and calls you. There is no credit check just to ask, and your details are not blasted across a heap of lenders. Accurate invoice figures and honest customer details help us match you properly the first time. See if you qualify.
Frequently asked questions
How do I calculate my days to get paid?
For a period, divide the average amount owed to you by your credit sales, then multiply by the number of days in the period. A simpler method: pick ten recent invoices and average the days from invoice date to payment date.
What is a good number?
It varies by industry. The useful comparison is with your own payment terms and with your own history. If you offer 14-day terms and customers average 38, that gap is the problem.
Should I charge interest on overdue invoices?
Some businesses include a late-payment term in their agreements. Business.gov.au says to state terms clearly and have a process for overdue accounts. Whether to charge extra is a commercial and legal question; ask your adviser.
Do deposits really help?
Yes. Business.gov.au lists deposits and early-payment discounts among the ways to improve cash flow. A deposit moves cash forward and tests how serious a customer is.
What if my biggest customer is the slow one?
Start with a conversation about terms and a payment schedule. If the account is too important to push, plan funding for the float rather than leaving it unplanned.