.A cash flow gap is the time in between, paying out for something and not getting the money back. Say you buy stock and pay your supplier on day one. You then sell the stock on to your customer, but they don’t pay you for 30 days. This time between you paying your supplier on day one, and your customer paying you on day 30, is your cash flow gap.
Therefore, the cash gap is the number of days between a business’s payment of cash for goods and services bought, and the receipt of cash from its customers for goods or services sold. This interval must be financed. The longer the time difference, the more interest a company must pay. Even when interest rates are low, the cost of financing can add up quickly. Therefore, it is important to shorten this time span.
Here are some ideas to implement into your business to shorten the cash flow gap.
• Bill/invoice immediately on completion of job
• Give 1 to 2% discount for early paying of invoices
• Add and collect interest on overdue accounts
• Require partial or full payment on contract to be paid up front
• Finish projects so that they can be billed/invoiced
• Outsource the entire billing/invoicing process to speed up receivables.
• Reduce inventory by using low inventory trigger points
• Buy inventory on consignment and pay when sold
• Systemise billing/invoicing process
• Complete the billing/invoicing process on a weekly basis
• Give 7 day terms instead of 30 days
• Send multiple bills/invoices with increasingly demanding tone at 14, 30,
• Negotiate longer terms from vendors