Free tool
What is late payment costing you?
See how much cash slow-paying customers tie up, and what it costs you a year to fund that gap. Runs in your browser. Nothing is sent anywhere.
Cash tied up by late payment = (annual credit sales / 365) x average days paid late. Yearly cost = cash tied up x the interest rate you pay to fund it. Example: $600,000 of credit sales paid 31 days late ties up about $50,959. Funding that at 10% p.a. costs about $5,096 a year.
General information only, not legal or financial advice. Every business and every debt is different. For advice on your situation, talk to a lawyer, your accountant or your state small business commissioner. This calculator gives an estimate only. Use your own figures and talk to your accountant about your cash flow.
Do not know how long customers take? Work out your DSO
How it works
The calculator assumes your sales are spread evenly across the year. One day of credit sales is your annual credit sales divided by 365. If customers pay on average 31 days after your terms, you are carrying about 31 days of sales that should already be in your bank account. That money has a cost: either interest on the overdraft or loan that covers the gap, or the interest you could have earned on it.
The margin figure shows why this matters. If you make 10 cents of profit on each dollar of sales, every $1,000 of funding cost wipes out the profit on $10,000 of sales.
How to bring the number down
- Put a real due date on every invoice and send it the day the work is done. See how to write payment terms.
- Chase on a timetable, starting the day after the due date. The 7 step playbook and free templates do the hard part.
- Charge agreed interest where your terms allow it. Use the late payment interest calculator.
- If a customer still will not pay, know your options: a letter of demand, small claims in NSW or other states, or a statutory demand for undisputed company debts.
- Large businesses report how fast they pay small suppliers. Check the Payment Times Reporting Scheme register before you accept long terms.
Common questions
How do I work out what late payment is costing my business?
Divide your annual credit sales by 365 to get one day of sales. Multiply that by the average number of days customers pay late. That is the cash tied up. Multiply it by the interest rate you pay on your overdraft, line of credit or loan to get the yearly cost.
What is days sales outstanding (DSO)?
DSO is how long, on average, it takes to collect a sale. Divide your debtors (accounts receivable) balance by your credit sales for a period, then multiply by the number of days in that period. Compare it with your payment terms.
What interest rate should I use?
Use the rate you actually pay to fund the gap, such as your overdraft, business credit card or line of credit rate. If you have no borrowings, use what that cash would earn in your savings or offset account.
Does this include bad debts?
No. It only measures the cost of waiting. Invoices that are never paid, your time spent chasing and any collection fees are extra.
Use it with your clients
Bookkeepers, accountants and journalists are welcome to link to this calculator: https://paidontime.org/tools/late-payment-cost/. It is free, has no sign-up and does not store anything you type.