Every trade business knows late payment hurts. Almost none can say by how much, because it arrives as four separate things: cash you cannot use, interest on the gap, hours spent chasing, and the invoices that never get paid at all. This adds the four up, and shows what tightening the average by a week is worth.
Late payment does not arrive as a bill, which is why nobody adds it up. It arrives as cash you cannot use, an overdraft you did not plan for, an afternoon a week on the phone, and the invoice that quietly never gets paid. Put your terms and your real average days-to-pay in, and it becomes one number a year — with the cash tied up shown beside it, because that is a balance, not a cost, and it is usually the bigger shock.
Start with the balance. Invoiced turnover times the average days customers take to pay, divided by 365, is the amount of your money that is permanently sitting in other people's bank accounts. The share of that above your terms is the overdue balance — the part you did not agree to lend. Your finance rate on the overdue balance is what carrying it costs, whether that is overdraft interest you actually pay or the return the cash would earn if you had it.
Then the labour: hours a week chasing, times 48, times the chaser's wage. Then the write-offs: the share of turnover that never gets paid at all. Add the three and that is the annual cost. The tool shows the cash tied up separately because it is not a cost — it is working capital — but it is the number that explains why a profitable business is always short of money in the busy season.
Days late is partly the customer and partly you. A customer who receives a clear invoice on delivery, a polite reminder three days before it is due, another on the day, and a firmer one a week after, pays sooner than one who hears nothing until somebody in the office has a spare afternoon. The chasing hours in the calculator are the afternoon. They go to zero when the reminders send themselves — and the average tightens at the same time, because the reminders are consistent in a way a busy office is not.
This is the same machinery as everything else in the case studies: the nursery's CRM already raises tasks and emails customers at every stage of an order, all the way to delivery. Payment reminders are one more stage. Service stopped depending on how busy the office was; so can getting paid.
£1.2m invoiced on 30-day terms, paid at 52 days on average: 22 days late. Turnover times 52 over 365 is £171,000 permanently outstanding; times 22 over 365 is £72,300 overdue. At 9% that costs £6,510 a year to carry. Four hours a week chasing for 48 weeks at £15 is 192 hours and £2,880. Half a per cent of turnover written off is £6,000. About £15,400 a year — and a week off the average is worth roughly £2,100 of it.
Get the real average days-to-pay from the ledger rather than guessing; it is nearly always worse than remembered. Then put the reminder sequence into whatever already talks to your customers, so it sends itself. That is one stage in the pipeline the operations audit maps for any business that invoices, and it usually sits beside a bigger win in quoting or order handling. The other calculators cover those, and the short version of the method is on the byHoratio homepage.
Add three things: finance on the balance sitting past your terms, the wages of whoever spends time chasing, and the invoices that never get paid. At £1.2m invoiced on 30-day terms and paid at 52, that is about £6,500 of finance on a £72,300 overdue balance, £2,900 of chasing time and £6,000 of bad debt — roughly £15,400 a year. The cash tied up is a separate and usually larger figure.
Cash tied up is a balance: the money that is permanently in your customers' accounts rather than yours, and the reason a profitable business can be short of cash. The cost is what that balance does to you each year — the interest or lost return on it, the chasing, the write-offs. The tool shows both because owners tend to feel the first and only ever measure the second.
Commercial debts — business to business — are covered by the Late Payment of Commercial Debts (Interest) Act 1998, which entitles you to statutory interest at 8 per cent above the Bank of England base rate plus a fixed compensation amount per invoice, unless your contract sets its own reasonable terms. Most small businesses never claim it. Check the current rules, and take advice before applying it to a customer you want to keep.
Consistency, not pressure. An invoice on delivery, a courteous reminder before the due date, one on the day, and a firmer one a week after, sent automatically from the same system that sends order updates. Customers pay the suppliers who ask reliably; the ones who ask only when the office has time get paid last. Automating the sequence removes the chasing hours and tightens the average at once.
Because it turns an abstract balance into a decision. Every week the average tightens releases turnover × 7 ÷ 365 of cash and saves the finance on it — about £2,100 a year at the defaults — before any reduction in chasing time. It is the cheapest week a business can recover, and it is usually a settings change in a system the business already has.
The reminder sequence sends itself, from the system that already talks to your customers. The audit finds the rest of the hours. Twenty minutes, no deck, no pitch.
HORATIO@BYHORATIO.COM
Customers emailed at every stage of an order, automatically — payment reminders are one more stage.
What the person doing the chasing actually costs an hour.
The hire, the charge-out rate, the margin leak, and more.