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What One Unpaid Job Costs, Shown in Margin Math
An unpaid invoice costs more than its face value suggests, because the labor and materials are already spent and every dollar of that hole has to be earned back at your profit margin, not at your prices.
At a glance
- In an illustrative $2,000 job with $1,200 already spent on labor and materials, a business earning a 10% net margin needs about $12,000 in new sales just to earn back the cash it put into the job.
- Half of small businesses hold less than a month of cash; a JPMorgan Chase Institute study of 597,000 small businesses found a median of 27 days of cash buffer, and 21 days for personal services firms.
- Collecting deposits, invoicing the day the work ends and following up on a schedule cost far less than replacing an unpaid job with ten times its value in new work.
The number and where it comes from
The figure that matters after an unpaid job is the cash already spent, divided by the net profit margin the business earns on new work. A job that is never paid for still consumed the crew's hours, the parts and the fuel, so the business is out those costs, and the only way to refill that hole is profit from other jobs, which arrives at the margin rate, usually a dime or two on each dollar of sales.
The owner's first reaction is usually It's only one invoice, measured against the price of the job. Measured against the profit on the next ten jobs, the same invoice looks very different, and the gap widens as margins get thinner.
There is no tax cushion for most small owners, either. IRS guidance says a business bad debt is deductible only if the amount owed was included in gross income, and a cash-method taxpayer, as most individuals are, generally cannot take a bad debt deduction for unpaid fees, because that income was never counted in the first place.
The worked calculation
| Invoice for the job (Assumption) | $2,000 |
|---|---|
| Labor and materials already spent (Assumption) | 60% of the invoice |
| Cash out of pocket (Calculated ($2,000 × 60%)) | $1,200 |
| Net profit margin on new work (Assumption) | 10% |
| New sales needed to earn back the cash (Calculated ($1,200 ÷ 10%)) | $12,000 |
| Median daily cash outflow, personal services firm (Cited benchmark (JPMorgan Chase Institute)) | $216 |
| Days of outflow the lost cash would have covered (Calculated ($1,200 ÷ $216)) | 5.6 |
Illustrative example; replace every assumption with your own numbers. Net margin here means profit after all costs, including overhead, as a share of sales.
The last two rows put the loss in calendar terms. For a personal services business with the median daily outflow in the JPMorgan Chase Institute data, the cash sunk into one unpaid $2,000 job would have covered almost six days of bills, a meaningful share of a cash buffer that the same study put at 21 days for that industry.
The calculation also explains why prevention is cheap by comparison. A deposit that covers the materials, an invoice sent the day the work is finished and a reminder schedule that starts before the due date each reduce the cash at risk on every job, while recovering from a single loss takes weeks of other customers' profit.
How you compare
- Cash buffer: in the JPMorgan Chase Institute study, the median small business held 27 days of cash and a quarter held fewer than 13 days; divide your bank balance by your average daily spending to find your own number.
- Cash flow strain: in the Federal Reserve Banks' 2024 survey of employer firms, 51% reported uneven cash flows as a financial challenge, a category that includes collecting on receivables.
- Your own baseline: add up the invoices more than 60 days past due right now and divide the total by your net margin to see how much new work they represent.
Questions to ask this week
How much cash is tied up in invoices over 60 days old? Pull the list from your accounting software.
Which jobs start without a deposit? Those carry the most cash at risk if the customer never pays.
How many days pass between finishing a job and sending the invoice? Every day of delay is a day added to the wait for payment.
The next step is to run the formula on your oldest unpaid invoice, then set a deposit and a same-day invoicing habit for the jobs that carry the most cost up front.
About this research: This article draws on the JPMorgan Chase Institute's study of cash balances at 597,000 small businesses (data from 2015, published 2016), the Federal Reserve Banks' 2024 Small Business Credit Survey and IRS guidance on bad debt deductions. The worked example is illustrative.
Sources
- Farrell, D. and Wheat, C. Cash Is King: Flows, Balances, and Buffer Days. JPMorgan Chase Institute, 2016. 597,000 small businesses.
- Federal Reserve Banks. 2025 Report on Employer Firms: Findings from the 2024 Small Business Credit Survey. 2025. 7,653 employer firms.
- Internal Revenue Service. Topic No. 453, Bad Debt Deduction.
Related reading: What a Discount Really Costs You, Shown in Margin Math · Gross Margin vs. Net Profit, Explained for Owners · Invoices That Get Paid Faster: What to Include and When to Send · The Late Payment Fee: Whether to Charge One and How to Word It
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