Growth can run a business short of cash

The order book looks better. The bank balance looks worse. For a growing business, those two observations can describe the same period without either being a mistake.

Producing more goods can require earlier spending on materials, labour and logistics. If customers pay after delivery, the business finances that interval. An accounting profit does not eliminate the cash tied up in the cycle.

Receivables products such as factoring address part of this problem, while other facilities may support procurement or inventory. The right structure depends on where the cash is committed and how it returns.

Draw the journey of one order

Start with the first supplier payment and finish with cleared customer funds. Include deposits, production time, stock holding, transport and payment terms. Then consider what happens when several orders overlap.

This exercise can reveal the peak requirement more clearly than a request based on a percentage of annual sales. It can also show whether the gap is recurring, seasonal or specific to expansion.

Finance the cycle you actually have

A facility should be compared with the timing and quality of the underlying cash flows. Stock that moves slowly and invoices that are routinely disputed need operational attention alongside any funding discussion.

Management can also examine supplier terms, customer deposits and collection processes. Improving those arrangements may reduce the amount that needs financing.

The commercial goal is to fulfil profitable demand without exhausting the resources needed to keep trading. A growth plan becomes stronger when it shows the cash required to deliver it, the point of maximum pressure and the mechanism through which the facility is repaid.