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Why businesses fund a gap

Agreed terms and actual behaviour are different numbers.

A business on 30-day terms collecting at 55 is running a 55-day business. The gap between the two is funded by somebody, and it is almost always the supplier.

Last reviewed 8 September 2026

Indicative interest cost

Weekly

Disclaimer

$162/week

$700 /month $8,400 a year while drawn

Facility limit $120,000

$5,000 $500,000

Average drawn balance $60,000

Nothing drawn Fully drawn

Indicative rate 14.00% p.a.

8% (secured) 30% (unsecured)

Apply directly with Prospa Why Prospa

Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.

The short version

Five lines that separate the two problems.

Measure per customer, not in total. An average of 48 days can be one customer at 90 and everyone else at 30, and those two situations need different responses.
Funding and fixing are separate. A facility covers the gap now. Nothing about it changes how the customer pays, and both jobs need doing.
The cost is knowable. Days late multiplied by the amount multiplied by the funding rate gives what a slow payer costs per year, and the figure is frequently startling.
Invoicing quality is the cheapest lever. A large share of late payment traces to invoices that were wrong, late, missing a reference or sent to the wrong person.
Indicative only. Every figure here is illustrative and no facility is offered here. Terms come from a lender after assessment.

The measurement

What a slow payer costs, in dollars.

A customer owing an average of $90,000 and paying 25 days beyond terms is holding roughly $61,000 of the supplier’s money at any time, if the account turns monthly. Funded at an indicative 14%, that costs about $8,500 a year, every year, for as long as the pattern continues.

Set against the margin on that account, the figure is frequently a large share of what the customer contributes. A business earning 12% on $1.1m of annual sales to that customer is making $132,000 and giving $8,500 of it back in funding cost, which is a noticeable share of the profit on the account.

Almost no business calculates this per customer, which is why late payment persists as a vague irritation rather than a managed number. Calculating it takes an aged receivables report and five minutes, and it changes how the conversation with that customer is approached.

Terms

30 days

Actual

55 days

Unfunded

25 days

Every cycle

Repeated

Why customers pay late

Four causes, and only one of them is about cash.

The response differs completely depending on which applies, which is why diagnosing before acting is worth the effort.

The invoice had a problem

A wrong reference, a missing purchase order number, the wrong address or an amount that does not match what was approved. The invoice sits in a queue nobody is looking at, and the supplier assumes it is being processed.

Their process is simply slow

Approval chains, monthly payment runs and a finance team working to its own calendar. Nothing is wrong and the invoice was never going to be paid on day 30, whatever the terms said.

It is policy

Some large buyers pay when they pay, and no amount of terms negotiation changes it. This is a commercial fact to be priced rather than a problem to be solved.

They are short

The genuine credit risk case, and the rarest of the four. It is also the one where slow payment is a warning rather than an inconvenience, and where a credit limit review matters more than a phone call.

Reducing the gap

Three steps, in order of cost.

01
Fix the invoicing first
Correct references, correct recipient, sent the day the work completes, in the format the customer’s system expects. A surprising share of late payment traces to invoices that never entered the customer’s process properly, and this step costs nothing but attention. It is also the step that makes any later conversation credible, because it removes the customer’s easiest answer.
02
Understand their process
A five-minute call to the accounts payable team establishes when payment runs happen, what an invoice needs to be approved, and who approves it. Aligning to that calendar is worth more than any escalation, and the information is freely given because the person answering also wants the invoice to clear.
03
Then negotiate, with a number
A conversation about terms goes better with the cost calculated. A supplier saying that late payment costs it $8,500 a year and proposing a settlement discount, a payment plan or shorter terms on new work is making a commercial proposal rather than complaining. Where the customer is on a supply chain finance programme, that is the moment to ask about it.

The concentration question

A single customer at two-fifths of the ledger is a risk before it is an inconvenience.

Where a single account dominates the ledger, late payment stops being a funding problem and becomes an exposure. A receivables funder will cap how much of that customer it will fund, which reduces the facility exactly where the business needs it most, and a failure at that customer would be more than a bad debt. Reducing concentration takes longer than arranging a facility and it is the more important piece of work.

Funding the gap

Which facility covers a slow ledger.

The gap recurs every cycle, so availability every cycle is the property that matters most.

Feature	Receivables facility	Revolving facility	Term loan
Sized on the ledger	Yes	No	No
Available every cycle	Yes	Yes	No
Handles one large slow payer	With a concentration cap	Yes, within the limit	Once
Includes collections	Under factoring, yes	No	No
Cost when the ledger is current	Low	Low	Full interest regardless

Where the problem is one dominant customer, a concentration cap may make a receivables facility less useful than it appears, and a revolving facility can be the better fit despite being sized on the business rather than the ledger.

Funding late payment

What it does and does not do.

What it does

Removes the operational pressure a slow payer creates every month
Lets the business keep serving a valuable account without carrying it unfunded
Turns an uncertain wait into a known and budgeted cost
Scales with the ledger, so the funding grows if the account does
Buys time to fix the underlying pattern rather than reacting to it monthly

What it does not

Change how the customer pays, which only the customer can do
Come free, since the cost recurs for as long as the pattern does
Cover a concentrated ledger fully, because of concentration caps
Address the risk in a customer that is late because it is short
Substitute for invoicing properly, which ordinarily costs nothing at all

The honest position

Pricing it in, where nothing else works.

Some customers will not change. Large buyers with fixed payment policies, government-adjacent entities with statutory processes, and any account where the supplier has no leverage all fall into that category, and no amount of process improvement moves them.

Where that is the situation, the funding cost is a cost of serving that customer and it belongs in the price. A supplier that knows an account costs $8,500 a year to carry and prices accordingly is running a profitable account. One that carries the cost invisibly is discounting without knowing it.

That reframing is the most useful thing on this page for a business that has already tried everything else. Late payment becomes a line item rather than a grievance, and the decision about whether the account is worth keeping becomes a calculation rather than a feeling.

The follow-up sequence

Three contacts, and what each one is for.

01
A week before it is due
A short note confirming the invoice is in their system and asking whether anything is needed to release it. This is the contact that catches missing references, wrong recipients and approvals sitting with somebody who is away, and it happens while there is still time to fix them.
02
The day after it falls due
Promptly rather than a fortnight later. A business that follows up on day one is teaching the customer’s system where it sits in the queue, and the ones that wait a month are teaching it something else. Tone matters less than consistency here.
03
A named person, not an inbox
Escalation works when it reaches somebody with authority rather than a generic address. Establishing who approves and who releases payment, once, saves the same conversation every month and gives the business a route when an invoice genuinely stalls.

The terms conversation

What to ask for, and what to trade for it.

A request to shorten terms lands better with something offered alongside it. A settlement discount for payment inside ten days, a small price concession on volume, or a commitment on delivery windows all give the customer a reason to agree that is not simply the supplier’s convenience.

It also helps to ask for a change on new work rather than on the whole relationship. A customer resistant to renegotiating an existing arrangement is frequently comfortable agreeing different terms on the next contract, and over a year that changes the shape of the ledger without a difficult conversation about the past.

Where nothing moves, the remaining lever is price. An account that costs several thousand dollars a year to carry is either worth that or it is not, and the calculation is what turns that into a decision rather than a grievance.

The credit decision

Terms are a credit decision, made once and rarely revisited.

Offering a customer thirty days is extending credit, and in most small businesses that decision is made in a sales conversation rather than a credit one. A trade reference check, a Companies Office search and a starting limit take twenty minutes at the point an account is opened and are almost impossible to introduce afterwards.

The limit matters as much as the terms. A customer that has been good for $8,000 a month is not automatically good for $40,000, and a business that lets an account grow without revisiting the limit has made a larger credit decision without ever making it deliberately.

Reviewing limits annually, and reviewing them immediately when a payment pattern deteriorates, is ordinary commercial practice in larger businesses and rare in smaller ones. It is also the step that separates a slow payer that is an inconvenience from one that becomes a bad debt.

The cost of the wait

What carrying a slow ledger costs.

A facility charged on what is drawn is the usual shape here, so this shows the interest cost of an average drawn balance rather than a repayment. Indicative only, and not a quote or offer of credit.

Indicative interest cost

Weekly

Disclaimer

$162/week

$700 /month $8,400 a year while drawn

Facility limit $120,000

$5,000 $500,000

Average drawn balance $60,000

Nothing drawn Fully drawn

Indicative rate 14.00% p.a.

8% (secured) 30% (unsecured)

Apply directly with Prospa Why Prospa

Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.

References

Sources

Ministry of Business, Innovation and Employment
Context for New Zealand work on business payment practices and payment times.
Commerce Commission
The regulator whose guidance covers conduct between businesses of unequal bargaining power.
Companies Office
The register used when assessing the standing of a customer that pays late.
Stats NZ
Context for New Zealand business payment and receivables patterns.
Financial Markets Authority, financial advice
Backs the distinction between general information of this kind and regulated financial advice.

FAQ

Bridging a late-paying debtor, questions answered

How do I work out what late payment costs?

Days beyond terms multiplied by the average balance owed, funded at the business’s cost of money. Calculated per customer rather than in total, it turns a vague irritation into a number that can be acted on.

Why measure per customer rather than overall?

Because an average hides the shape. Forty-eight days on average can be one customer at ninety and everyone else at thirty, and those two situations call for entirely different responses.

What is the most common cause of late payment?

Invoicing problems, more often than cash problems. A wrong reference, a missing purchase order number or a wrong recipient leaves an invoice sitting outside the customer’s process while the supplier assumes it is being handled.

Is it worth asking about a customer’s payment process?

Yes, and it is the cheapest step available. A short call to accounts payable establishes when payment runs happen and what an invoice needs to clear approval, and aligning to that is worth more than escalation.

How should a terms conversation be approached?

With the cost calculated. A supplier presenting what late payment costs and proposing a settlement discount, a plan or shorter terms on new work is making a commercial proposal, which lands differently from a complaint.

What if the customer will not change?

Then the funding cost is a cost of serving that account and belongs in the price. Knowing the figure turns the decision about whether to keep the account into a calculation rather than a feeling.

Which facility suits this gap?

A receivables facility ordinarily, because the ledger is both the problem and the security. Where one customer dominates, concentration caps can limit what is available and a revolving facility may fit better.

Does factoring make customers pay faster?

Frequently, because a factor has no relationship to protect and follows a process regardless. That improvement is part of what the service fee buys and belongs in the comparison.

When is late payment a credit warning rather than an inconvenience?

When the customer is late because it is short, which is the least common of the causes and the most serious. A deteriorating payment pattern combined with other signals is worth a credit limit review rather than a phone call.

What about charging interest on overdue accounts?

It can be provided for in terms of trade, and in practice it is more often used as leverage in a conversation than actually collected. Whether it is enforceable in a particular arrangement is a question for a solicitor.

Is customer concentration a separate problem?

Yes, and a larger one. A single account at a large share of the ledger is an exposure before it is a funding issue, it caps what a receivables funder will advance, and reducing it takes longer than arranging any facility.

Is this page financial advice?

No. It describes a situation and the instruments that address it in general terms. This site is not a lender, a broker or a registered financial adviser, and what suits a particular business depends on facts a website cannot see.