Collection Lag

What is collection lag?

Collection lag is the delay between sending an invoice and receiving payment. Even after you bill, cash sits in accounts receivable until the client pays. If you invoice in March and collect in May, you have two months of collection lag. Combined with billing lag, collection lag determines how long you finance client work with your own capital before converting it to cash.

Factors affecting collection lag

Payment terms set expectations. Net 30 terms mean 30 days of built-in lag. Client payment processes add time. Large organizations with approval workflows pay slower than small businesses with check-signing authority. Disputes extend collection indefinitely until resolved. Some industries and client types consistently pay slower than others. Track collection lag by client segment to understand patterns.

Accelerating collections

Send invoices promptly and follow up consistently on overdue amounts. Offer multiple payment methods including credit cards and ACH. Consider early payment discounts. Require retainers from slow-paying or new clients. Escalate collection efforts appropriately as invoices age. Address disputes quickly. Make collections a regular process, not a sporadic crisis response. Every day of reduced collection lag improves your working capital.