The 15-day advantage: What happens when your business is paid 15 days earlier?
30 days is a lifetime. At least it is in business. Even just 30 days without adequate working capital can cause businesses to fail. Or miss opportunities to grow. Employees might lose their jobs. Investment is suppressed, putting the squeeze on entrepreneurs.
If that sounds dramatic, a mountain of research now supports what small and medium-sized business owners have always known: lengthy payment terms are bad for business.
But here is the good news: even small improvements on payment terms have a dramatic effect. Securing access to working capital just 15 days earlier can make the difference between failing and thriving.
Research* conducted by MIT and Harvard Business School took the task of finding the answer to a simple question: “Can paying small business contractors faster have a meaningful effect on their cash flows, facilitate hiring, and ultimately stimulate aggregate employment?”
Their research looked at the effect of cutting the time taken between invoice approval and payment by 15 days. Relative to companies who did not receive the 15-day boost, the research shows that being paid 15 days sooner results in substantial positive business effects such as:
Decreased loan delinquencies
Lower likelihood of firm failure
Greater employment growth
Accelerated business and new contracts
More reliable payments to own suppliers or subcontractors
Let us examine why the 15-day advantage is so important - and how you can ensure your business has a competitive edge.
Delayed payment in a time of instant gratification
Consider a loose analogy. Suppose you are doing your holiday shopping on your favorite online platform. You choose your gifts and pay what is owed. Then you get an email telling you to wait a month for delivery.
You would understandably be annoyed. As consumers, we are entitled to efficient service. In a digital world of instant connectivity and digital payments, why should businesses accept longer than necessary delays on services rendered?
There is a more fundamental disconnect. In that hypothetical scenario, you give the retailer cash, and they sit on the money for a month, potentially using it for productive investment. In effect, you are financing the retailer.
Similarly (and much more consequentially) if you outlay a substantial amount of money to fulfil a job for a client, and they only pay you 30 days after you invoice for a completed job, your business is effectively shouldering the financing burden of your client.
It is not merely a question of fairness. Delayed payments may just be how business is done in many sectors, but the process frequently causes mismatches between when payment is received, and finance required to meet fixed costs and other expenses. In many cases, 30 days without payment is simply too long to ensure business continuity.
Small improvements, huge advantages
There is a simple and effective solution.
Research shows that if businesses are paid just 15 days earlier, they are much less likely to fail. The positive effects are no less dramatic: a 15-day payment advantage enables companies to grow their business and hire more staff, with commensurate increases in overall investment.
For contractors, the advantages are obvious. With sufficient working capital on hand, you can focus on securing new clients and fulfilling new contracts. In other words, you can focus on growing your business.
Without adequate working capital, you cannot take on new jobs until you have been paid for previous work. And in that time, you may have lost skilled staff and missed opportunities in a very competitive market.
However, shortening the time by which cash is received, even by just 15 days, is usually an effective means to ensure business continuity, help business meet payroll demands and enable them to access working capital to fulfill new contracts.
Frequency Capital: Creating a level playing field for contractors
Of course, it is not possible to force companies to pay their invoices more quickly. And it may not be smart business to make aggressive demands for early payment, especially when the market is competitive.
Fortunately, contractors now have easy access to funds even before lengthy payment terms are met. That is excellent news for businesses, and good for the economy. Frequency Capital has designed a solution to help make the market fairer for contractors.
Frequency Capital provides accessible and transparent financing to contractors, to ensure you can access the capital you need before the conclusion of the agreed payment term.
Frequency Capital’s accounts receivable factoring facility was designed based on the latest economic research. By providing contractors with quicker access to working capital, we help to ensure business growth.
We will pay you up to 90% of the invoice’s value where payment terms are 90 days+ , ensuring much quicker access to working capital. The facility is entirely transparent and there are no hidden fees.
Stop falling into the payment term trap. Do not risk the sustainability of your business because financing seems opaque or complex. Ensure you have access to the capital your business needs to thrive.
Get in touch with us today to find out how invoice factoring and how we can help you improve your cash flow firstname.lastname@example.org