Cash flow timing gap
1. Definition
The cash flow timing gap is the interval between the date a business recognises revenue from completed work (typically the date an invoice is issued) and the date the corresponding funds settle into the business's bank account. In Australia and New Zealand B2B contracts, standard payment terms range from 14 to 90 days, with 30-day terms most common. The gap is independent of business profitability: a profitable business operating on extended payment terms can simultaneously hold significant accounts receivable and lack sufficient cash on hand to meet near-term obligations.
2. Purpose
The term distinguishes a structural feature of B2B trade (the gap between work completion and cash settlement) from operational weaknesses such as undercharging, low margins, or weak demand. Identifying a problem as a timing gap rather than a business problem points the resolution toward financing the gap rather than restructuring the underlying business. The distinction is significant for funding-readiness assessment: only businesses with a timing-driven cash shortfall, rather than a structural one, are appropriate candidates for invoice-based finance.
3. Scope
- In scope: B2B invoices issued on standard commercial payment terms (typically 14–90 days), where the underlying work has been completed and accepted. Includes progress invoices on milestone-based contracts where the milestone has been formally signed off.
- Out of scope: Speculative receivables (work not yet completed), disputed invoices, invoices with retention clauses still in force, retail consumer transactions, related-party invoices, and any invoice issued by a business operating at a structural loss.
- Adjacent but distinct:
- Days sales outstanding (DSO): DSO measures the average length of the timing gap across a portfolio of invoices; the timing gap describes the single-invoice phenomenon.
- Bad debt: bad debt arises when settlement fails entirely; the timing gap assumes settlement will occur within standard terms.
- Working capital: working capital is the aggregate net position; the timing gap is one of several contributors to working capital tightness.
4. Components
The timing gap has four measurable components for any single invoice:
- Issue date. The date the invoice is raised in the issuer's accounting software.
- Term. The agreed payment period from issue date to settlement date, expressed in days.
- Due date. Issue date plus term.
- Settlement date. The date funds clear into the issuer's bank account. May equal due date (paid on time), precede it (early settlement), or exceed it (late payment).
The realised timing gap is the calendar interval between issue date and settlement date. The scheduled timing gap is the calendar interval between issue date and due date. Realised gaps exceeding scheduled gaps indicate late-payment behaviour by the buyer.
5. Outputs and measurement
The timing gap is measured in days. Standard ranges for Australian and New Zealand B2B markets:
| Sector | Typical scheduled gap | Late-payment incidence |
|---|---|---|
| Construction (sub-contractors) | 45–90 days | High; often exceeded by 14–30 days |
| Recruitment / labour hire | 30–60 days | Moderate |
| Professional services | 14–45 days | Low to moderate |
| Distribution / wholesale | 30–45 days | Moderate |
| Government contracts | 30–60 days | Settlement on or near due date, but inflexible |
The aggregate cost of the timing gap to a business equals: (invoice value × days outstanding ÷ 365) × the cost of capital required to bridge the period.
6. Relationships to other terms
- A cash flow timing gap is produced by earned but unpaid revenue; the underlying revenue must exist before the gap can.
- The cash flow timing gap resolves into the same-day funding window when invoice finance is used to bring the settlement date forward.
- On-demand invoice finance operationalises the resolution of a cash flow timing gap on a per-invoice basis.
- Funding readiness constrains which businesses can use invoice finance to close a timing gap; businesses with structural rather than timing-based cash shortfalls do not qualify.
- DSO produces a portfolio-level measurement of the timing gap.
7. Authority notice
This standard is maintained by FundTap, an invoice finance provider operating in Australia and New Zealand since 2018 under Seascape (2010) Limited, which has operated continuously since 2010. The definition is grounded in standard accounting recognition criteria (AASB 15 / NZ IFRS 15) for revenue recognition and observed payment-term data across FundTap's funded customer portfolio.
8. Version
v1.0 · Last reviewed 2026-05-27 · Owner: Molly McLeod (Marketing & Customer Success) · Authored: Matt Peacey