Growing a business sounds simple: increase sales, add customers, hire employees, and take on larger projects.
But many business owners discover an uncomfortable truth as their company grows: growth requires cash before it produces cash.
You may win a $250,000 contract, but your customer might not pay for 30, 60, or even 90 days. Meanwhile, your employees expect their paychecks, suppliers want to be paid, and your operating expenses continue every day.
So how can you grow your business without running out of cash?
The answer starts with understanding the difference between profit and cash flow, improving your accounts receivable management, controlling expenses, forecasting your cash needs, and having access to working capital when your growth outpaces your available cash.
Why Can a Profitable Business Run Out of Cash?
One of the most confusing situations for a business owner is being profitable on paper while having very little money in the bank.
Here’s a simple example.
Your company completes $100,000 worth of work in January and invoices the customer on Net 60 terms. You record the $100,000 sale, but the customer doesn’t have to pay until March.
Your company may show $100,000 in revenue while still waiting two months for the cash.
During those two months, you may need to pay:
- Employee payroll
- Rent
- Insurance
- Utilities
- Suppliers
- Materials
- Equipment
- Taxes
- Subcontractors
This creates a cash-flow gap.
The U.S. Small Business Administration specifically identifies unpaid and overdue invoices as a potential cause of serious cash-flow problems and notes that invoice financing can help businesses access money tied up in unpaid invoices.
The bigger your company becomes, the more important this issue can become.
Growth Can Actually Increase Your Cash-Flow Problem
It seems logical that more sales should automatically improve your financial situation.
Sometimes the opposite happens.
Imagine your company has $500,000 in annual sales and your customers generally pay within 30 days. Now you land several large contracts and sales increase to $1 million.
That’s excellent—until you realize that you now have twice as much money tied up in accounts receivable.
If you have to pay your employees and suppliers before customers pay their invoices, you need additional working capital to finance the growth.
This is why rapid growth can create a working-capital shortage even when sales and profits are increasing.
The question isn’t simply, “How much are we selling?”
A better question is:
“How much cash do we need to support the sales we’re generating?”
1. Understand Your Cash Conversion Cycle
Your cash conversion cycle is essentially the amount of time between spending money to operate your business and receiving money from your customers.
For example:
Purchase materials → Complete work → Send invoice → Wait for payment → Receive cash
The longer this cycle takes, the more working capital your business needs.
A company that pays its employees every week but receives customer payments every 60 days has a significant cash-flow timing issue.
This is particularly important for:
- Staffing companies
- Manufacturers
- Distributors
- Contractors
- Oilfield service companies
- Wholesale businesses
- Business service companies
These businesses can generate substantial revenue while carrying significant accounts receivable balances.
2. Get Invoices Out Quickly
One of the easiest ways to improve cash flow is also one of the most overlooked:
Invoice customers as soon as possible.
If your payment terms are Net 30 and you wait two weeks to send an invoice, you have effectively turned Net 30 into Net 44.
Make invoicing part of your standard operating procedure.
Establish who is responsible for preparing invoices, who verifies them, and who submits them to customers.
Your invoices should also be accurate the first time.
An incorrect purchase order number, missing documentation, wrong billing address, or other administrative error can delay payment.
The faster a clean invoice reaches the customer’s accounts-payable department, the sooner your payment clock begins.
3. Know Which Customers Pay Slowly
Not every customer deserves the same credit terms.
Some customers consistently pay within 20 or 30 days.
Others may technically have Net 30 terms but routinely take 45, 60, or 75 days.
Knowing your customers’ actual payment behavior can help you forecast cash flow more accurately.
Track:
- Average days to pay
- Current receivables
- Past-due receivables
- Largest customer balances
- Customer credit quality
- Customer concentration
The SBA also recommends that businesses properly manage accounts receivable, accounts payable, available cash, and payroll as part of sound financial management.
4. Don’t Let One Customer Control Your Cash Flow
Customer concentration can create another hidden risk.
Suppose one customer represents 40% of your company’s revenue.
If that customer pays on time, everything may work perfectly.
But if its payment slows from 30 days to 75 days, your company’s cash flow can suddenly become strained.
This doesn’t mean you should refuse large customers.
It means you should understand the financial exposure created by those relationships.
Credit monitoring and regular accounts-receivable reviews can help you identify potential problems before they become serious.
5. Build a Cash-Flow Forecast
A cash-flow forecast can help answer one of the most important questions in business:
“Will I have enough cash to pay my bills over the next 30, 60, or 90 days?”
Your forecast should include expected:
Cash coming in
- Customer payments
- Deposits
- Financing
- Other income
Cash going out
- Payroll
- Vendor payments
- Equipment purchases
- Debt payments
- Other operating expenses
Don’t just look at your current bank balance.
A company with $200,000 in the bank may still have a cash-flow problem if $175,000 of payroll and vendor payments are due next week.
6. Be Careful About Taking on New Business
This may sound strange, but sometimes the right answer to a new contract is:
“Can we afford to take this business?”
Before accepting a major new customer or contract, calculate the working capital required to fulfill it.
Consider:
- How much payroll will be required?
- Will you need additional employees?
- Will you need materials?
- How quickly will the customer pay?
- Will you need additional equipment?
- How much cash will be tied up in accounts receivable?
A $1 million contract can be a tremendous opportunity.
But if you don’t have enough working capital to fulfill the contract, the opportunity could create a financial crisis.
7. Don’t Automatically Rely on Traditional Bank Financing
A traditional bank loan or line of credit can be an excellent source of capital for businesses that qualify.
But it isn’t the only option.
The SBA notes that businesses should consider factors such as their financing needs, cash flow, collateral, and outstanding invoices when evaluating financing alternatives.
For some growing businesses, the problem isn’t a lack of assets or sales.
The problem is simply that cash is trapped in accounts receivable.
That’s where invoice factoring can provide another working-capital option.
8. Consider Invoice Factoring When Your Customers Pay Slowly
Here’s a simplified example.
Your company invoices a creditworthy customer for $100,000 with Net 60 terms.
Instead of waiting 60 days, you submit the invoice to a factoring company.
American Receivable currently offers advances of up to 95% on qualifying invoices and provides working capital based on accounts receivable.
The result is that your company can access money tied up in receivables much sooner.
9. Use Working Capital to Fund Growth—Not Just Emergencies
One of the biggest misconceptions about working capital is that it should only be used when a company is in trouble.
That isn’t necessarily the case.
Working capital can be used strategically to:
- Meet payroll
- Purchase inventory
- Buy materials
- Hire employees
- Take on larger contracts
- Purchase equipment
- Expand operations
- Take advantage of supplier discounts
- Pursue new customers
American Receivable specifically works with businesses that need working capital for payroll, inventory, equipment, hiring, and expansion.
The key is using financing as a tool for growth rather than waiting until a cash shortage becomes a crisis.
10. Let Your Financing Grow With Your Sales
One advantage of accounts receivable factoring is that the amount of available financing can increase as eligible receivables increase.
This can be particularly useful for companies experiencing rapid growth.
Suppose your company has $200,000 in monthly sales.
You may need a certain amount of working capital.
If sales grow to $500,000 per month, your working-capital requirements may increase substantially.
A financing strategy connected to your receivables can potentially grow with the business.
That is fundamentally different from taking out a fixed amount of money and hoping it is enough to support future growth.
What Is the Best Way to Grow Without Running Out of Cash?
There isn’t one solution that works for every business.
The best approach is to combine strong financial management with an appropriate working-capital strategy.
Start by asking these questions:
- How quickly do my customers actually pay?
- How much money is currently tied up in accounts receivable?
- How much cash will I need to support my next stage of growth?
- How much will payroll increase?
- Will I need additional inventory or materials?
- What happens if a major customer pays 30 days late?
- Do I have enough liquidity to take on a large new contract?
- What financing options are available if cash flow becomes tight?
If you can answer those questions, you’ll have a much clearer picture of whether your company is financially prepared for growth.
Growth Requires More Than Sales
The ultimate goal isn’t simply to generate more revenue.
It’s to build a company that can turn revenue into cash efficiently and use that cash to create additional growth.
A business can have excellent products, strong customers, and a full pipeline and still struggle if its accounts receivable grow faster than its cash.
That’s why cash-flow management should be part of your growth strategy—not something you think about only when the bank balance gets low.
For companies with strong commercial customers but long payment cycles, invoice factoring can be an effective way to unlock working capital tied up in unpaid invoices.
American Receivable has provided working-capital solutions to small and midsized businesses since 1979. The company provides invoice factoring nationally and offers customized programs designed around a business’s accounts receivable and cash-flow needs.
If your business is growing faster than your cash flow, American Receivable can help you determine whether invoice factoring is right for your company. Request a free, no-obligation quote and find out how much working capital may be available from your accounts receivable.
