Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How Two-Invoice Limit Prevents Cash Flow Surprises
Transcript
- Lucas: You know, we've talked a lot about chasing late payments, offering discounts, factoring invoices. But there's a simpler preventive measure I keep running into with business owners who rarely have cash crunches. Luna: I'm all ears. What's the secret? Lucas: It's a two-invoice cap. You tell each customer they can only have two unpaid invoices at any time. Once they hit two, no new work ships until at least one is paid. Luna: That sounds almost too simple. Does it actually work? Lucas: It does. I talked to a packaging company in Seattle — about thirty employees, does custom boxes for local breweries and food startups. They had a DSO — days sales outstanding — of forty-seven days. That's almost two months to get paid. Luna: Ouch. That's a lot of cash tied up. Lucas: Right. Their bookkeeper was spending half her week sending reminders. So the owner implemented this rule: each customer could have a maximum of two outstanding invoices, net thirty terms. If you're at two, the third invoice doesn't get generated until the oldest one clears. Luna: What happened? Lucas: Within ninety days, their DSO dropped to nineteen days. Customers started paying faster because they wanted to keep ordering. The bookkeeper reclaimed about ten hours a week. And the owner said their cash flow forecasting went from 'cross your fingers' to actually reliable. Luna: Nineteen days from forty-seven. That's a huge swing. But weren't customers upset? Lucas: A few grumbled at first. But the owner framed it not as a punishment, but as a way to ensure they could keep serving everyone reliably. He said, 'We want to be able to prioritize your orders, and this lets us do that.' Most customers actually respected it. Luna: I can see that. It's a clear boundary. And it probably helped the customers manage their own payables better too. Lucas: Exactly. The policy forces a conversation. If a customer is consistently at two invoices, you know they're a slow payer. You can then decide whether to offer them a different arrangement — like a deposit on large orders — or to wind down the relationship. Either way, you're making a conscious choice, not just hoping they'll pay someday. Luna: What about customers who place one big order that spans multiple invoices? Like a construction firm billing progress payments. Lucas: Great question. The rule needs a nuance. For project-based work with milestone billing, you might allow three or four invoices, but tied to a single project. The key is that the number is finite and known in advance. The Seattle company set it at two for most customers, but for their largest client — a regional brewery chain — they agreed to four invoices because each order was a full container load. But they still enforced the cap: at four, no more until oldest cleared. Luna: So it's a rule with exceptions, but the exceptions are written down and agreed upon. Lucas: Right. And you communicate it in writing when you set up the account. That's critical. The Seattle owner sent a letter to all existing customers: 'To continue providing you with the best service, we're implementing a two-invoice policy. Here's how it works. If you have any concerns, please call us.' He said only two customers called, and both just wanted clarification. Luna: That's smart. Proactive communication instead of surprising them when they hit the limit. Lucas: And it's a great way to signal that you take your own cash flow seriously. That actually builds trust with customers who are well-run themselves. They see you as a professional counterparty, not someone who will let invoices slide for months. Luna: I want to try this with my freelance clients. I have a few who consistently take sixty days to pay, and it's frustrating. Setting a limit might actually help them prioritize me. Lucas: It might. And you can start small. Just implement it with new clients first, or with the ones who are habitually late. You don't have to change everyone at once. Luna: That's a good point. By the way, if these conversations have helped you think about your business differently, consider supporting the show. It keeps us ad-free and focused on practical ideas like this one. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, we really appreciate that. And listeners, if you try the two-invoice cap, let us know how it goes. We love hearing real results. Luna: Back to the mechanics. Lucas, what about the accounting software? Does the cap require custom setup? Lucas: Surprisingly little. Most systems like QuickBooks or Xero let you set credit limits per customer. You can just set the limit to the total of two average invoices. The system will block new invoices if the customer's outstanding balance exceeds that number. The Seattle company used a simple spreadsheet to track it manually at first, then moved to a rule in their ERP. Luna: So it's doable for even a tiny operation. What's the one mistake you've seen businesses make with this approach? Lucas: They don't enforce it consistently. If you let one customer slide because they're 'important', the policy loses its teeth. Other customers will hear about it, and soon you're back to the old system. You have to be willing to say no to a new order, even from a big client, until they pay. Luna: That takes guts. But I suppose the alternative is financing their business with your cash. Lucas: Exactly. And if a customer is so big that you can't afford to lose them, then you need to negotiate different terms upfront — like a deposit or shorter payment period. But the two-invoice cap is a tool to protect your working capital. Use it. Luna: I love that it's preventive rather than reactive. Most cash flow advice is about what to do after a payment is late. This stops the lateness from happening in the first place. Lucas: That's the beauty of it. It's a simple rule that changes behavior on both sides. Customers become more disciplined, and you stop wasting time on collections. Luna: Alright, I'm implementing this next week. Thanks, Lucas. Lucas: You're welcome. And thanks for listening, everyone. We'll be back next time with another way to make your cash flow work harder.