Late Payment Isn't the Only Loss — The Wait Costs You Too
Even if a customer eventually pays in full, every day that cash sits uncollected is already a loss. Had that money arrived on time, you could have borrowed less or invested it elsewhere for a return — and that missed opportunity disappears while the invoice stays overdue. This is commonly called opportunity cost, and it's usually calculated using your short-term borrowing rate or the return you could otherwise earn on the cash. The larger the receivable and the longer it stays overdue, the faster this invisible loss compounds. Regularly checking your accounts receivable turnover is a good way to catch this hidden cost early.
How It's Calculated
| Step | Item | Detail |
|---|---|---|
| 1 | Daily loss | Receivable x annual rate / 365 |
| 2 | Total loss | Daily loss x days overdue |
| 3 | Loss rate | Total loss / receivable x 100 |
For accuracy, use your actual short-term borrowing rate or investment return as the cost-of-capital rate. If you're not sure, a typical working-capital loan rate of 5-7% annually is a reasonable reference. This calculation doesn't include the risk of the receivable becoming fully uncollectible (bad debt), which should be assessed separately. If a customer is chronically late, it's also worth considering upfront deposits or collateral terms going forward.
Frequently Asked Questions
Your business's borrowing rate or investment return is typical; if unsure, use around 5-7% annually as a reference.
If you have a penalty clause and actually collect it, the loss is offset. If you don't collect, this remains your real loss.
No — this only measures the opportunity cost of tied-up cash. The separate bad-debt risk must be judged on its own.
* Actual losses depend on your cash position and bad-debt risk; this is a reference estimate only.