Business Edition: Your Biggest Customer Might Be Your Worst
Two customers. Same revenue, same margin.
One pays you in 14 days. The other takes 90.
They are not the same customer.
On your P&L they look identical. In your bank account they're completely different businesses.
That matters more than almost anything else on your dashboard because of the working capital gap.
Your suppliers want payment in 30 days. Some of your customers take 60, 90, sometimes longer. Which means for every sale, there's a window where you've already paid for the goods and haven't yet been paid for them.
You fund that window. Out of your own cash.
And the faster you grow, the bigger that gap gets, because more sales means more inventory bought up front, and more customers means more money sitting in debtors.
Every new order widens the window before it closes it.
So the better the month, the tighter the cash.
That's how a profitable, growing business runs out of money - and why "we're busier than ever" and "I can't make payroll" are sentences that get said in the same week.
Which brings me back to those two customers.
Revenue is not the only thing you're getting when you win an account.
You're also getting their payment behaviour.
A large account that pays in 90 days consumes your cash for three months at a time. A smaller one that pays in 14 funds itself and part of the next order.
The first looks better on your revenue chart. The second is better for your business.
So three things worth doing:
1. Know your actual collection cycle per customer
Not their stated terms. What they actually do.
If an account is on 60 days and consistently pays at 75, your real number is 75. Build your forecast on behaviour, not on paperwork.
2. Weight new business toward fast payers where you can
You won't always have the choice. But when you're deciding where to put your effort - which channels to push, which accounts to chase - payment behaviour deserves to be part of that decision.
Most operators never factor it in at all.
3. Negotiate both sides of the gap
Everyone tries to collect faster. Far fewer try to pay slower.
Moving your suppliers from 30 to 45 days closes the gap just as effectively as pulling a customer from 60 to 45. And you can often do both.
One last thing.
A working capital facility is a legitimate tool for bridging this gap. But there's a difference between using one deliberately because you understand the gap, and reaching for one because you didn't see it coming.
One is a financing decision. The other is a rescue.
Know which one you're making.
If you know someone who would benefit from reading this, please forward it to them. It may change the trajectory of their life for the better, and the catalyst could be you.
