Accounts Receivable Is a Loan You Are Giving

I was reviewing financials with an owner last week. Good revenue, solid margins on paper. But cash was tight and he couldn't figure out why.

I pointed to his accounts receivable balance. It was sitting at 47 days outstanding. He had over $200,000 essentially parked in his customers' bank accounts, not his.

He said, "Well, that's just how it works in our industry."

That's the moment I pushed back.

When you extend payment terms and let invoices age, you are not being flexible or relationship-friendly. You are making an interest-free loan to your customer. You are funding their operations with your cash, your labor, your materials. And unlike a bank, you are doing it with zero return and zero guarantee.

Most owners accept this as normal. It is not normal. It is a choice, and it is costing you.

The fix is not always dramatic. Tighter invoicing cycles, deposits on larger jobs, small discounts for early payment, consistent follow-up on aging invoices. These are not aggressive moves. They are basic financial hygiene.

The owner I mentioned above implemented a few of these changes. Within 60 days he had collected most of that balance and stopped quietly wondering why his bank account never matched his income statement.

Cash is the oxygen of your business. Accounts receivable is cash you have already earned but chosen not to collect.

So here is the question worth sitting with: if a bank charged you interest on every day you let an invoice go unpaid, how quickly would your collections process change?

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From "The Owner's Almanac" - 90 days to build a business that runs without you. Available on Amazon.