Half the Fix for Your Cash Gap Is on the Bills You Pay
Ask a restoration owner about cash and you will hear about collections. The carrier is slow, the mortgage company sits on the draw, the homeowner has not paid the deductible. All true, and all outside your direct control.
There is a second half to that cycle, it is almost entirely inside your control, and most owners have never deliberately managed it. It is the timing of the bills you pay.
The cycle has three parts, and you only manage one
The cash conversion cycle measures how many days your money is trapped in the business. In plain terms:
Days your customers take to pay, plus days your work sits unbilled, minus days you take to pay your suppliers.
That last term is doing real work in the equation, and it carries a minus sign. Days payable outstanding, or DPO, is calculated as your accounts payable divided by your cost of goods sold, multiplied by the days in the period.
Every day you add to DPO is a day of financing you did not have to arrange, did not have to personally guarantee, and did not have to pay interest on. On a restoration job where the carrier pays over four to eight weeks and a supplement can restart that clock, moving supplier terms from net 30 to net 45 covers a meaningful piece of the gap by itself.
Yet almost every cash conversation in this industry is about the first two terms. Collections get a process, an aging report and somebody's Tuesday. Payables get paid when the software says they are due.
Negotiated terms and paying late are not the same thing
This is the distinction the whole idea lives or dies on, and it is worth being blunt about it, because "stretch your payables" is advice that has wrecked plenty of contractors.
Negotiated terms means you asked, your supplier agreed, and the invoice now says net 45. Nothing is late. Your account stays current. You have converted a relationship into working capital.
Paying late means the invoice says net 30 and you pay on day 52. You have not created financing. You have taken it without asking, and you are paying for it in a currency that does not show up on your profit and loss statement.
That currency matters more in restoration than in most trades. When a storm comes through and every shop in the region wants the same dehumidifiers, the same lumber and the same drywall crew, the supplier who has been carrying you at day 52 all year decides who gets served first. Your payment history is capacity insurance, and it comes due exactly when capacity is worth the most.
Terms you negotiated are free financing. Terms you took without asking are a loan against your position in the next storm, at a rate nobody quotes you.
The tension with taking the discount, and how to resolve it
Earlier this month I made what sounds like the opposite argument: that a 2/10 net 30 discount is worth roughly 36% annualized, and passing it up to hold cash for twenty extra days is one of the most expensive things a cash-strapped contractor routinely does.
Both are true, and they resolve on one question: what does the money cost you?
- If you have the cash, take the discount. Earning an effective 36% by paying twenty days early beats anything else that dollar can do.
- If you do not have the cash and the alternative is drawing a line of credit at 10%, then extending terms is the cheaper source and the discount is not really available to you at all.
- If a supplier will give you longer terms and a discount for early payment, you have both options open and you choose per invoice depending on your position that week.
The rule underneath: never let the decision be made by default. A discount forgone because nobody noticed it is not a financing decision, it is an oversight that costs you the same as one.
Not every payable should be stretched
A blanket policy here is a mistake, because your vendors are not one category.
National suppliers with formal credit departments are where terms are genuinely negotiable and where an extra fifteen days costs you nothing relationally. Start here.
Subcontractors are your capacity, not your bank. A sub who cannot make payroll because you are holding their money will take the next job from somebody else, and in a labor-short trade that is the most expensive saving available to you. Pay subs on the terms you agreed.
Anything tied to a lien right deserves care. A supplier or sub with preserved lien rights on your job has leverage that does not depend on your relationship, and a stretched payable can turn into a lien on a property where your own payment is still pending.
Four things to do
1. Calculate your current DPO. Accounts payable divided by cost of goods sold, times the days in the period. Most owners have never seen the number, and you cannot manage a term you have not measured.
2. Ask your three largest suppliers for terms. Not a payment plan, not a hardship conversation. A commercial request from a customer with a clean payment history, which is a routine thing credit departments handle every day. The answer is often yes, and the cost of asking is a phone call.
3. Line up your DPO against the carrier's clock. If your claims collect in four to eight weeks and your suppliers are on net 30, you are financing the difference on every job. Knowing the size of that difference tells you how much term you actually need to ask for.
4. Decide discounts deliberately, per invoice. Take them when cash allows, skip them knowingly when it does not, and never let the calendar decide for you.
The point
Collections deserve the attention they get. But the cash conversion cycle has three terms, and the one you can change with a phone call is the one nobody makes the call about.
Negotiated terms are the cheapest capital in this business, and the difference between negotiated and taken is the entire distinction between a stronger balance sheet and a supplier who quietly stops prioritizing you. Measure the number, ask for the terms, and keep the discount decision conscious.
Working out what your cycle actually costs you, and where the cheapest days are, is the sort of thing our CFO subscription exists to put in front of you every month. Get in touch if you have never seen your own DPO.
General guidance for restoration and reconstruction owners, not a substitute for accounting advice tailored to your company's numbers, contracts, or supplier agreements.
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Sources: No survey data, industry statistics or third-party figures are used in this post. Days payable outstanding equals accounts payable divided by cost of goods sold multiplied by days in the period, and the cash conversion cycle equals days sales outstanding plus days inventory outstanding minus days payable outstanding, are standard working-capital definitions from managerial accounting. The single numeric reference, that a 2/10 net 30 discount is worth roughly 36% annualized, is carried over from this site's published 2026-08-10 article on early payment discounts and is stated here at the same value used there rather than recomputed to a different convention. The four-to-eight week claim collection window is stated as it was in the published 2026-08-14 claim-cycle article. The distinction between negotiated terms and late payment, the argument that payment history functions as capacity insurance during a storm surge, the vendor categories and how each should be treated, the lien-rights caution, and the four recommended practices are practice and opinion drawn from restoration operations, not findings from a study.