Week 1

The Bushes' new home site construction was completed on Tuesday. Jim packs up his equipment and moves on to the next project.

Before driving to the site of the next project on Wednesday morning, Jim prepares the invoice for the work completed at the Bushes' new home site. While preparing the invoice, he recalls some extra work that he completed around the new home site that was not included in his original proposal to the Bushes. The Bushes did agree to Jim performing this extra work. It's a good thing he is preparing their invoice now, otherwise he would have completely forgotten about the extra work he performed. He drops the completed invoice in the mailbox on the way to his new project site. The Bushes should receive the invoice within the next day or two. His credit terms call for the full payment of the invoice in 30 days. This makes the payment due in the fifth week.

If Jim prepared the Bushes' invoices according to his old way of doing business, their invoice would not have been prepared until week four the end of the month. The old method added three additional weeks to his cash conversion period, slowed his cash inflows, and created a cash flow nightmare for Jim.

Weeks 2 and 3

Jim completes a couple other projects during these two weeks and moves on to another. Jim expects payment from the Bushes sometime within the next two weeks.

Jim has been preparing the invoices for all completed jobs the morning after the project is finished. He drops the invoices in the mailbox that very same day, and his customer's receive their invoices within just a few days. Jim has found it much easier to prepare his invoices while the completed project is still fresh in his memory. He also recalls having to prepare as many as five to 15 invoices at once, depending on how busy the month was.

If Jim prepared the Bushes' invoices according to his old way of doing business, their invoice would not have been prepared until week four the end of the month.

Week 4

It's the end of the month and it has been a very busy month for Jim. Jim is all caught up with his invoicing, so he spends the morning fishing and the afternoon golfing. The Bushes' payment should be arriving sometime next week. Who knows, it might even be in Jim's mailbox when he gets home!

If Jim prepared the Bushes' invoices according to his old way of doing business, their invoice would not have been prepared until week four the end of the month.

Week 5

The Bushes' check is in Jim's mailbox when he gets home Monday night. Jim drops the check off at the bank Tuesday morning and mails a check to the subcontractor he used on the Bushes' new home project.

Compared to his old way of preparing invoices, Jim has reduced his cash conversion period by almost three weeks and accelerated his cash inflows. Accelerating cash inflows is a major step for improving a business's cash flow.

Weeks 6 and 7

Jim's cash flow is better than ever since he started preparing invoices the day after he completes each project. Preparing invoices the day after a job is completed provides Jim with a steady stream of cash inflows throughout the year. The payments from the projects completed during the second and third weeks are arriving during these two weeks.

If Jim prepared the Bushes' invoice according to his old way of doing business, their account would not be due until the eighth week.

Week 8

Jim's cash flow is still going strong. Jim is continuing to prepare invoices for his customers as he completes their projects. Amounts due from the invoices he prepared during the fourth week should be arriving some time this week.