Looking for the money that your report says you made? Steven Palmieri, a Tax CFO, starts with an honest observation. The report and the bank are both right. They are counting different things, and the difference is exactly what customers still owe you.
Under the accrual method, income is counted when you earn it, and costs are counted when you incur them. Under the cash method, income counts on the day the money lands. The IRS asks a business to pick one method and use it consistently. Many owners keep their books one way and live day to day on the other. That mismatch is the first reason profit and cash drift apart.
Suppose a company finishes a job in March, bills it in April and is paid in June. Under the accrual method, the profit lands in March. In the bank, the money lands in June, and the payroll for the crew was due in April. This is a made-up example, and the dates are only there to show the shape. The business was profitable the whole time and short of cash for two months.
An aging report lists every customer who owes you, how much they owe and how long it has been. It is the most useful single page for an owner with slow payers. Read it each month, and you will see which customers are drifting from thirty days to forty-five, which invoices are stuck and which ones just need a phone call. Vendors to big hospital systems around the South Texas Medical Center learn their customers' payment cycles the hard way. We learn them with you, and we write them down.
The first lever is to invoice faster and more exactly. An invoice that matches the purchase order, with every required number on it, is paid sooner than one that gets sent back. Many delays begin at the invoice and have nothing to do with the customer's cash.
The second is to change terms on new work. A deposit, a progress bill or a shorter payment window can be asked for before the work begins, when your position is strongest. Some customers cannot agree, and that is worth knowing early.
The third is to finance the gap. A credit line, set up in advance, covers the weeks between the bill and the payment. It costs interest, and it should be sized against the gap you actually measured. The page on a credit line before you need it covers how to ask.
Ask for the remittance schedule at the start of the job and not when you are late. Ask who approves the invoice and what they need to see. Ask when the next payment run is. These are ordinary questions, and customers with a regular process usually answer them readily. Write the answers into the plan.
Earned in March, collected in May, needed for payroll in April. That sentence is the whole problem, and the whole plan is a way of writing it down for each customer.
Tax follows the books and not the bank. An owner who is waiting to be paid can still owe tax on the profit, and the amount depends on the method the return uses. A Tax CFO closes each month, so the estimate is set knowing what has been collected and what is still out. The method is chosen on purpose and not by accident. A single set of books feeds the return, which keeps the story to one version. The other pages on this site build on this idea, and selling to government and big institutions shows it with long payment clocks.
Bring your open invoices and we will read them with you on a free Second Look call. The visit is free and asks for no signature.
You will be talking to the Steven Palmieri practice.