Payment schedules to pay my bills on time seem to be getting shorter. I received a bill the other day from MCI and it says that it it is due 21 days later. I always thought I had 30 days to pay this bill. After calling customer service and reading the fine print, I realized that their bill is deceptive. In one section of the bill it says that the payment is due May 16th. In another part of the bill it states that “a 1.5% late payment charge will apply to any unpaid balance as of May 23, 2008” (30 days from the date of the statement). So, while the payment “due date is May 16th”,  I can pay as late as 5/22 and not receive a late charge. I understand why MCI does this. If they can get their customers to pay their bills a week early, this extra week’s worth of cash is worth millions of dollars to MCI. This is a large source of cash flow for them.

It is the same in your business. If you do $1M a year in business and your average customer pays in 6 weeks and you cut the payment time by one week to 5 weeks, you gain $20,000 of cash. Not bad since you can now use that cash for reinvestment in your business or payout to yourself!