Ninety Days From Work to Cash. Thirty-One of Them Are Yours.
Before financing a cash gap, it is worth knowing how much of the gap the business built itself. In most professional services firms, about a third of it.
A working capital facility is priced on risk and sized on need. Neither of those is a reason to finance days that a billing calendar created. The useful order is to measure the whole cycle first, remove what can be removed, and then size a facility against what is genuinely structural.
Ninety days, in five pieces
Take an illustrative case. An engineering and design firm runs $12 million of annual revenue, which is about $32,900 a day. Work is billed monthly in arrears. From the day an engineer does the work to the day cash arrives is, on average, 90 days.
That number is made of five stages, and only one of them is the payment terms everyone talks about.
Fifteen days: work performed to the invoice. Monthly billing means the average hour worked waits half a month before it appears on anything.
Eight days: internal preparation. Timesheets close, project managers review, someone assembles backup, the invoice goes out in the second week of the month.
Ten days: client review. The client checks the invoice against the contract, queries a line, or returns it because the backup is not in the format their system requires.
Forty-five days: payment terms. The contractual part, and the only one most firms try to negotiate.
Twelve days: late. Paid past terms, which is ordinary and mostly uncontested.
Thirty-one of those days are inside the firm
Each stage has a realistic recovery, and none of it requires a client to do anything unusual.
Semi-monthly or milestone billing takes about 7 days out of the first stage. Locking timesheets on a schedule and generating draft invoices automatically takes about 5 days out of the second. Matching the client’s required backup format and submitting through their portal correctly the first time takes about 6 days out of the third, because most of that stage is rework rather than review.
Payment terms are partly negotiable, usually at renewal and usually not with the largest clients. Moving half the book from 45 days to 30 is worth about 7 days. And a documented collections cadence, with someone owning it, takes about 6 days off the lateness.
That is 31 days, worth roughly $1.02 million of cash at $32,900 a day. It is a one-time release rather than new profit, and it also avoids about $92,000 a year of interest on a line at an illustrative 9 percent.
The other 59 days are a financing question
Here is where this argument usually goes wrong. Someone concludes that the firm does not need a facility at all, cleans up the billing process, and is short again the following quarter.
Fifty-nine days of revenue, about $1.94 million, stays tied up permanently. It is the cost of doing work before being paid for it, and no billing change removes it. It grows when the firm grows, which is why a good year tightens cash rather than loosening it.
That is the number a facility should be sized against, and it is a better number to bring to a lender than the unimproved one. A firm that has already shortened its own cycle presents a shorter collection profile, a cleaner aging, and evidence that it manages the thing the lender is lending against.
Why the days stay in place
The stages that cost the most are the ones nobody owns.
Billing frequency is set by whoever configured the accounting system, often years ago. The internal review exists because an invoice went out wrong once. The client’s format requirement lives in an appendix to a contract that the person preparing invoices has never read. Lateness persists because chasing payment is nobody’s actual job and it is awkward with clients the firm wants to keep.
None of those is a finance decision, which is exactly why finance never fixes them. They get fixed when one person is given the cycle as a number to report on, with the same seriousness as utilization or backlog.
The order that works
Measure the full cycle from work performed to cash received, not days sales outstanding from the invoice date. DSO conveniently excludes the two stages the firm controls most.
Then split the days into what the firm causes and what the market causes, remove what can be removed, and size a facility against the remainder.
Doing it in the other order finances the whole 90 days, which costs more, and leaves the firm dependent on a facility for a problem that a billing calendar was creating.
How Thalos Capital Approaches This
Thalos Capital works borrower-side on working capital from $50 thousand to $100 million and above, across the United States. The starting point is the cash cycle rather than a facility size: where cash leaves, when it comes back, which days are structural and which are self-inflicted.
For a services firm that usually produces two outputs. A shorter cycle the firm can act on without borrowing anything, and a properly sized facility for what is left, arranged against a receivables profile that is now easier to lend against rather than harder.
The firm in the example was not badly run. It was measuring the 45 days everyone argues about and had never measured the 45 days around it.
Most financing situations have more options than the borrower initially sees. A conversation is enough to map them. Submit your financing request at https://thaloscapital.com/contact.