Cash Flow Management for Growing Companies

More businesses fail from poor cash management than from lack of profitability. It's a counterintuitive truth: you can be profitable on paper while running out of money in the bank. Growth, especially rapid growth, is often the culprit.

This guide covers the fundamentals of cash flow management for growing companies—the concepts, tools, and practices that separate companies that thrive from those that stumble.

Why Cash Flow Is Different From Profit

Profit is an accounting concept. Cash is reality.

Your P&L might show a profitable quarter, but if your customers pay in 60 days and your suppliers demand payment in 30, you have a cash flow problem. If you're investing in inventory to support growth, that cash is tied up until you sell and collect. If you're hiring ahead of revenue, payroll goes out before the revenue comes in.

This gap between profit and cash is working capital, and managing it is the core of cash flow management.

The Cash Conversion Cycle

The cash conversion cycle measures how long it takes to turn a dollar invested in your business back into a dollar in your bank account. The formula:

Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding = Cash Conversion Cycle

• Days Inventory Outstanding (DIO): How long inventory sits before it's sold
• Days Sales Outstanding (DSO): How long customers take to pay
• Days Payable Outstanding (DPO): How long you take to pay suppliers

A company with 45 days of inventory, 60-day customer terms, and 30-day supplier terms has a cash conversion cycle of 75 days. That's 75 days of operating expenses you need to fund before cash comes back.

Improving any of these metrics frees up cash. Faster inventory turns, faster collections, or extended payment terms all reduce your cash needs.

The 13-Week Cash Flow Forecast

Every company should maintain a rolling 13-week cash flow forecast. It's the single most important cash management tool, and we've written a complete guide to building one.

The basics:

• Weekly granularity: Daily is too noisy, monthly is too coarse
• Rolling horizon: Always 13 weeks out, updating weekly
• Direct method: Actual cash in and cash out, not accounting adjustments
• Conservative assumptions: Use historical patterns, not optimistic projections

The discipline of maintaining this forecast forces you to see problems before they become crises. Two weeks' notice of a cash shortfall is enough time to accelerate collections or arrange a line of credit. Two days' notice is a scramble.

Accelerating Cash Inflows

Tighten Payment Terms

If you're offering Net 60 because "that's what we've always done," test tighter terms. Many customers will pay faster if you simply ask. New customers especially can often be started on better terms.

Invoice Promptly

It sounds obvious, but many companies delay invoicing. If you complete work on the 15th but invoice on the 30th, you've just extended your DSO by 15 days for free. Invoice immediately upon delivery or completion.

Make Payment Easy

Accept credit cards (yes, the fees are worth it for faster cash). Offer ACH for recurring payments. Send invoices electronically with clear payment links. Remove friction from the payment process.

Active Collections

Don't wait for invoices to become delinquent. Call customers before payment is due to confirm receipt and expected payment date. Have a systematic process for following up on aging receivables.

Consider Factoring or AR Financing

For companies with strong receivables and short-term cash needs, selling receivables to a factor or borrowing against them can bridge timing gaps. The cost is real but often less than the cost of passing up opportunities or missing obligations.

Managing Cash Outflows

Negotiate Payment Terms

Just as customers may pay faster if asked, suppliers may extend terms if asked. Larger purchases or longer relationships often justify better terms. Don't assume the first offer is final.

Time Payments Strategically

Pay on the due date, not before. Early payment doesn't build goodwill—it just ties up your cash. The exception: if you're offered a discount for early payment (like 2% 10 Net 30), do the math. A 2% discount for paying 20 days early is a 36% annualized return.

Prioritize Payments

When cash is tight, not all payments are equal. Payroll and taxes are non-negotiable. Key suppliers who could shut you down come next. Unsecured creditors who can wait get paid last. Having a clear priority framework prevents panic decisions.

Control Inventory

Inventory is cash sitting on shelves. Just-in-time inventory management, better demand forecasting, and clearing slow-moving stock all free up cash. The goal isn't zero inventory—it's right-sized inventory that supports sales without excess.

Building Cash Reserves

The best time to build cash reserves is when you don't need them. Target 3-6 months of operating expenses in reserve, built gradually during good times.

Cash reserves provide:

• Operational cushion: Cover unexpected shortfalls without panic
• Negotiating power: Pay cash for discounts, walk away from bad deals
• Opportunity capacity: Pounce on opportunities that require quick action
• Stress reduction: Make decisions from strength, not desperation

When Growth Strains Cash

Rapid growth is the most common cause of cash crises in otherwise healthy businesses. Revenue is growing, margins are healthy, but cash is always tight.

This happens because growth requires investment before the return:

• Hiring staff before revenue comes in
• Buying inventory before sales are made
• Extending credit to customers who haven't paid yet
• Investing in equipment or facilities for future capacity

The solution isn't to stop growing—it's to fund the growth appropriately. This might mean:

• Working capital financing: Lines of credit specifically designed to fund receivables and inventory
• Customer deposits: Require upfront payment or deposits for large orders
• Phased growth: Grow at a pace your cash flow can support
• External capital: Equity or debt to fund the expansion

Warning Signs

Watch for these early indicators of cash flow trouble:

• Increasing reliance on credit cards or credit lines
• Delaying vendor payments beyond terms
• Difficulty making payroll on time
• Rising DSO (customers taking longer to pay)
• Increasing inventory levels relative to sales
• Profitable months with declining bank balance

Any of these signals should trigger a deep dive into your cash flow. The earlier you address problems, the more options you have.

Getting Help

Cash flow management isn't glamorous, but it's essential. Companies that master it grow sustainably, weather downturns, and have options that cash-strapped competitors don't.

If your cash flow feels unpredictable or you're constantly managing cash crises, we can help. We build the forecasting infrastructure, identify improvement opportunities, and create the systems that give you control over your cash.