Step · Reveal
The Payment Terms Cost
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Every net-60 invoice is a 60-day loan you extended to your client at zero percent interest. Aggregated across a year, the interest is your money.
What this reveals. One number: the annual opportunity cost of carrying your clients' cash during their payment terms, priced at what that cash would have earned for you.
What it does not do. It does not tell you to renegotiate payment terms mid-engagement. It documents what payment terms have cost so the next contract carries the number.
What is your average invoice amount?
The typical dollar value of an invoice you send. Round to the nearest thousand.
What are your stated payment terms?
The terms written into your contract. Not what actually happens.
On average, how many days pass before you actually get paid?
From invoice date to funds in your account. Include late payments in the average. If clients routinely exceed the stated terms, use the real number.
How many invoices do you send per year?
Total invoices across all clients. Round to the closest bucket.
What rate could that cash have earned for you?
The opportunity cost of the money you are carrying for your client. A savings account, an investment, business capital, or the rate you would pay to borrow to cover the gap.
the opportunity cost of the cash you carry for your clients each year
The number above is what your payment terms cost you annually in opportunity value. It priced the days between invoice and payment at what that money would have earned if you had it.
Every day the invoice sits unpaid is a day the client uses your cash. The number is the cost of that cash at the opportunity rate you selected.
Three scenarios from the same inputs:
Assumptions used: average invoice size, stated terms, actual DSO, invoices per year, and opportunity rate, all inputs you selected. The cost is a scenario built from those inputs. It is not a forecast, a valuation, or financial advice. Consult a financial advisor for capital-planning decisions.
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This estimate prices the delay between invoice and payment at the cost-of-money rate you entered. Use your own financing or opportunity rate. The figure changes directly with it.
A term comparison like this is usually enough to decide what to propose: the deposit, the schedule, and the late terms. Put them in the agreement before you sign.
Set your own date: the signing date of the next agreement.
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