Ask a manager how long passes between a client placing an order and the money coming in. The answer is usually the contractual term: "thirty days." Reality is almost always double that, and the difference is not with the client — it is spread across six internal steps nobody measures separately.
The six moments
- Order to delivery. Depends on operations, and the only step most companies actually measure.
- Delivery to internal confirmation. Someone has to confirm it was delivered, and under what terms. This is where invisible days get lost.
- Confirmation to invoice issued. The most expensive step, and the easiest to fix, as covered in the cost of invoicing late.
- Issued to received by the client. Sent to the right person, with the right details, or it sits there with nobody knowing.
- Received to due date. The agreed term, the only one that shows up in the contract.
- Due date to payment. The actual delay.
Doing the sum
A common example at a services company: five days between delivery and confirmation, ten days to invoicing, two days for the invoice to reach the right person, thirty days of agreed term, twelve days of average delay. Total: fifty-nine days, on a thirty-day contract.
The important point is that only thirty of those days were actually negotiated. The other twenty-nine are internal, not in the contract, and entirely controllable without talking to anyone outside the company.
Where the leverage is
Cutting ten days off the invoicing step is almost always easier, faster and less uncomfortable than negotiating ten days off a client's term. And the effect on cash flow is exactly the same.
This is why, when a company tells us it has a collections problem, the first thing to measure is not collections: it is the time between delivering and invoicing.
The other side: the full cycle
The true cash conversion cycle also subtracts the term you pay suppliers on. A company that collects at 59 days and pays at 30 has 29 days of operations to fund permanently. Multiplied by monthly purchase volume, that is the amount tied up — usually covered with a credit line, at a cost rarely compared against the effort of cutting those ten days off invoicing.
Measure once, per client type
This does not need measuring every month. Once, done properly, with three or four representative clients, is enough to find where the days are being lost. After that, just track the end result through average collection period, which works as the thermometer.