The cash cost of a 60-day customer (Sponsored)

A UK customer has offered a large contract to a startup with 60-day payment terms. While the revenue looks attractive, the question of how much cash the startup must find before the customer pays is less visible. Before signing, founders should factor in the collection date into their cash forecast and compare it with when payroll, suppliers, and taxes are due.

They should also test what happens if payment takes longer. While a profitable contract can still require funding, revenue targets alone do not provide it. For startups selling services or software to larger organizations, this distinction is crucial. Payment terms are part of the commercial offer, not a minor detail discovered after the sale.

Financing the customer for longer should be made visible alongside gross margin and acquisition cost. An estimated additional £395,000 in receivables at 60 days ties up about £395,000 in invoices without adding a pound of annual revenue. This amount would cost about £39,500 a year at a modeled 10% funding cost. Negotiating setup fees, milestone billing, or deposits can reduce the financing cost.

Checking the customer's payment practices and legal entity is important before signing. Separating invoices expected to pay normally from overdue balances is also crucial. A customer paying on day 60 has used the agreed credit period, while a payment on day 75 introduces additional uncertainty. Fund growth with actual liquidity, not assumed recovery, and run scenarios with plausible delays to identify when hiring or delivery commitments may need to change.