Instead of trying to explain what defines the cash gap and the formula to calculate it, here is a little story.
When Maria opened her local bakery, she never imagined that success could bring stress. Customers loved her cakes and orders were piling up. But behind the scenes, Maria was struggling—her suppliers demanded payment up front, while catering clients sometimes took 45 days to pay.
Even though her bakery was profitable on paper, Maria often found herself scrambling to cover payroll and rent. What she was experiencing is known as a cash gap.
A cash gap is the time between when you pay money out (to suppliers, staff, rent) and when you actually receive money from your customers.
In Maria’s case:
- She paid her flour supplier on day 1.
- Her bakery delivered catering orders within 10 days.
- Her clients paid 45 days later.
That’s almost two months of expenses Maria had to cover before seeing the cash.
Why Cash Gaps Hurt Small Businesses
Cash gaps are dangerous because:
- You might struggle to cover bills, even if sales are strong.
- Expensive short-term loans or credit cards may become a lifeline.
- Growth stalls—you can’t buy more inventory or take on bigger projects.
But Maria’s story didn’t end there. She made a few changes that turned her cash flow around.
How Maria Reduced Her Cash Gap
1. Faster Customer Payments *** Only offer a discount if the profit margin has calculated for it
Maria switched to an online invoicing system and added a small 2% discount for clients who paid within 10 days. Many took advantage, which sped up her cash inflows.
2. Negotiate with Suppliers
Instead of paying for flour immediately, she asked her supplier for 30-day terms. Because she was a loyal customer, they agreed.
3. Watch Stock Closely
Maria noticed she was overstocking on specialty ingredients that sold slowly. By ordering smaller amounts more frequently, she kept more cash in the bank.
4. Started Forecasting
Each month, Maria created a cash flow forecast to see when money would come in and go out. This let her plan ahead, not panic.
Within a few months, Maria had turned her cash gap from 60 days down to just 15. She no longer worried about covering payroll, and she had the confidence to invest in a new espresso machine that boosted sales even more.
- Invoice quickly and clearly — don’t delay asking for money you’ve already earned.
- Encourage faster payments with discounts or digital payment options.
- Negotiate supplier terms to match your cash cycle.
- Manage stock smartly so cash isn’t stuck on the shelf.
- Forecast regularly to stay ahead of shortfalls.
If you would like help with reducing your cash gap then reach out today email anita@thornburycollections.co.uk or call 07506735705
Cash gaps are common, but they don’t have to control your business. With planning and a few strategic moves, you can shorten the gap, free up cash, and give yourself room to grow—just like Maria did.
Anita Pickersgill
See Steer Your Business September/October 2025
