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Simple English definitions for legal terms
lead-lag study
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A quick definition of lead-lag study:
A lead-lag study is a way for a utility company to figure out how much money it needs to keep on hand to pay its bills. It does this by looking at how long it takes the company to pay its bills and how long it takes its customers to pay for their service. The study compares these two times, called "lead time" and "lag time," to figure out how much money the company needs to have in reserve.
A more thorough explanation:
A lead-lag study is a survey that helps a utility company figure out how much money it needs to keep in reserve to pay its bills. The study looks at how long it takes the company to pay its bills and how long it takes its customers to pay for their service.
The study uses two terms: lead time and lag time. Lead time is the average number of days between when the company gets an invoice and when it pays it. Lag time is the average number of days between when the company bills its customers and when it gets paid.
For example, let's say a utility company has a lead time of 30 days and a lag time of 60 days. This means it takes the company 30 days to pay its bills and it takes its customers 60 days to pay for their service. The company needs to have enough money in reserve to cover the 30-day gap between when it pays its bills and when it gets paid by its customers.
The lead-lag study helps the company figure out how much money it needs to keep in reserve to cover this gap. By analyzing the timing of its cash flow, the company can calculate the amount of necessary reserves.