Latest / Cash Flow Conversations with Fexingo: Working Capital, Receivables, and Small Business Finance / How One Plumbing Company Cut Its Payment Cycle from 60 Days to 4
Transcript
- Lucas: So a plumbing company in Phoenix — about forty trucks, mostly commercial service calls — was sitting on an average receivables cycle of fifty-eight days. That's nearly two months from the day they finished a job to the day the check cleared. Luna: Fifty-eight days for a company that has to pay its plumbers every two weeks. That's a real tension. Lucas: Exactly. Owner's name is Mark. He told me the worst part wasn't the slow payers — it was the fast payers who mailed a check that took three days to arrive and another two to deposit. The internal process added days on both ends. Luna: So the physical check itself was a bottleneck, even when the customer paid quickly. Lucas: Right. And Mark had tried the usual fixes — offering a two percent discount for payment within ten days, sending statements, calling overdue accounts. None of it moved the needle below forty-five days. So he decided to change the infrastructure, not just the incentives. Luna: What did he do? Lucas: Three things, and none of them are new individually — but he layered them in a way that compounded. First, he switched from emailing PDF invoices to sending them through a text-based portal. Customer gets a text message with a link, clicks it, sees the invoice, and has a button to pay by card or ACH. Luna: So the friction of opening email, downloading a PDF, finding the checkbook — all gone for a lot of customers. Lucas: Exactly. Mark said about sixty percent of commercial customers paid within twenty-four hours of receiving the text. The ones that still wanted to mail a check — he gave them a second option: a lockbox. Luna: A lockbox with a local bank, I assume? Lucas: Not exactly. He used a flat-fee lockbox service — not a bank, a fintech that charges twenty-five dollars a month plus fifty cents per item. They give him a PO box in Phoenix, sweep the box daily, image the checks, and deposit the funds into a money market account by the end of the next business day. Luna: So even the paper check route got accelerated. No more holding checks for a weekly deposit run. Lucas: Right. The third piece is the one that raised eyebrows: credit card surcharging. Mark added a three percent convenience fee for card payments. He was worried it would anger customers. But he framed it as a line item called 'card processing fee' — and only charged it on invoices over five hundred dollars. Luna: Did customers push back? Lucas: About ten percent grumbled. But seventy percent of customers chose to pay by card anyway, fee and all. Mark said they valued the speed and the digital receipt. The remaining thirty percent used ACH, which cost him nothing. The lockbox checks dropped to less than five percent of payments. Luna: So the surcharge effectively acted as a filter — it moved most customers to faster payment methods, and the ones who really wanted to pay by check got routed through the lockbox anyway. Lucas: Yeah. The net effect: average payment cycle went from fifty-eight days to four days. Four. The cash that used to float out there for two months was now in his account within the same week the invoice was sent. Luna: What was the cost? I mean, the surcharge and lockbox fees add up. Lucas: Mark calculated that the total cost — lockbox fee, card processing fees net of the surcharge pass-through, and the portal subscription — came to about two point eight percent of revenue. That's the drag. He's essentially paying two point eight cents on every dollar to get his cash in four days instead of two months. Luna: But the alternative cost of waiting fifty-eight days — that's not free either. You have to finance those receivables somehow, even if it's just the opportunity cost of not having the cash. Lucas: Right. Mark did the math. His average monthly revenue is about eight hundred thousand dollars. At fifty-eight days, he had roughly one point five million dollars tied up in receivables at any given time. He was effectively lending that to his customers interest-free. After the change, that number dropped to about one hundred and ten thousand. Luna: So he freed up almost one point four million in cash. That's not a small number for a company his size. Lucas: He used it to buy three new service vans outright — no financing. And he hired two more plumbers. The company's revenue grew about fifteen percent in the following year, and Mark says the payment infrastructure was the unlock. Luna: It's a good example of how small businesses can treat receivables as a system to be redesigned, not a fixed reality. But I wonder — does this approach work for every type of small business? Or are there conditions? Lucas: Good question. Mark's business has a few things going for it. First, the average invoice is around three thousand dollars — big enough that the card fee isn't a dealbreaker, but not so big that customers will fight it. Second, his customers are mostly commercial property managers who already pay vendors by card. The behavior was already there. Luna: So the customer base was primed for digital payments. For a business that deals with consumers on smaller invoices, the surcharge might not fly. Lucas: Exactly. And the lockbox only makes sense if you have enough check volume to justify the flat fee. Mark was getting about a hundred checks a month. At fifty cents each, that's fifty dollars in item fees plus the twenty-five dollar monthly — so seventy-five bucks. For him, it was trivial. For a business that gets ten checks a month, probably not worth it. Luna: So the lesson is: look at your own payment mix, identify the bottlenecks, and pick the cheapest fix that shifts the most dollars the fastest. Lucas: That's the framework. Mark could have gone to a factor and sold his invoices for a discount. He could have taken a line of credit. But those solutions would have cost him more than two point eight percent in interest or fees over time. He chose to redesign the pipeline instead of financing the delay. Luna: You know, hearing stories like this makes me think about how many small businesses just accept long payment cycles because 'that's how it's always been.' Mark's willingness to try something unconventional — like surcharging — made a real difference. Lucas: It also helps that these conversations we have on the show are ad-free. We deliberately don't run ads because we want the content to be purely useful. If you've gotten value from episodes like this one and want to support that choice, the link is buy me a coffee dot com slash fexingo. No pressure, but it helps keep the show independent. Luna: Yeah, it's a small way to keep these stories coming. And we appreciate everyone who does. Lucas: So back to Mark — one thing he mentioned that stuck with me: he said the biggest surprise wasn't the cash flow improvement. It was the reduction in administrative work. His office staff used to spend about fifteen hours a week chasing payments. After the change, that dropped to about two hours. Luna: That's an interesting second-order effect. The cash flow freed up capital, but the time freed up capacity to focus on growth. Lucas: Right. And that's the real multiplier. Mark told me his office manager now spends those thirteen extra hours on customer follow-up and scheduling — which directly supports the revenue growth. Luna: So the payment redesign didn't just accelerate cash — it shifted the business's operating rhythm. It's a virtuous cycle. Lucas: Exactly. And it raises a question I think about a lot: how many other small businesses have a similar bottleneck hiding in plain sight? Not a sales problem, not a cost problem — a payment infrastructure problem that they've just accepted as normal. Luna: That's a good note to end on. Next episode, maybe we'll look at a business that took the opposite approach — accepting long payment terms but using them as a competitive advantage. Lucas: I like that. We'll dig into a case where slow pay was actually a strategy. Until then, thanks for listening.