The Bushes' new home site construction was completed on Tuesday. Jim packs up his equipment and moves on to the next project. Jim will not prepare the invoice for this completed project until the end of the month (week four).Weeks 2 and 3
Jim completes a couple other projects during these two weeks and moves on to another. Jim dreads the thought of having to sit in his office completing all those invoices for the different jobs completed during this busy month. The Bushes' invoice will not be completed until the end of the fourth week.Week 4
It's the end of the month — and it has been a very busy month for Jim. Jim spends a full day preparing 16 invoices for all of the projects completed during the month. Included in this group is the invoice for the Bushes' new home site completed four weeks ago. The Bushes and the other customers should receive their invoices within the next day or two. His credit terms call for the full payment of the invoice in 30 days. This makes their accounts due in the eighth week.
P.S. If you see Jim, tell him he forgot to include theWeek 5
The subcontractor used on the Bushes' new home project calls late in the week inquiring about the payment of their bill. The Bushes' account is not due for three weeks, and Jim's broke. Care to guess why?Weeks 6 and 7
At this point, Jim's cash flow gap is bigger than the Grand Canyon! He heads to the bank on the Monday morning of week six. Luckily, he's granted a short term loan to get him through this cash flow crisis. Jim hand delivers a check to the subcontractor he used on the Bushes' new home project.Week 8
The Bushes' check, made out for the full amount of their account, arrives during the week. Their account was paid on time since Jim allows his customers 30 days from the date of the invoice to pay their accounts. It has now been eight weeks since Jim did the work for their new home site.
Jim takes the Bushes' check to the bank Tuesday morning. Unfortunately, he is
unable to pay back the entire loan because other bills have come due that
require immediate payment.