The business is growing.
Sales are up 30%.
You’ve got more customers.
More work is booked.
You’re issuing bigger invoices.
On paper, things look better than they did last year.
So why does the bank account look worse?
This catches business owners by surprise.
They assume:
More sales = more cash.
Eventually, perhaps.
But growing businesses often need more working capital before they receive the benefit of that growth.
For an Alstonville business expanding across agriculture, trades, transport, food production, wholesale or commercial services, increasing sales can mean more money tied up in:
customer invoices
stock
materials
wages
fuel
subcontractors
work in progress
The business can become more profitable while simultaneously becoming more cash hungry.
That’s not automatically a sign something is wrong.
But we need to know whether the growing debtor ledger represents healthy growth or deteriorating collections.
Let’s Start With a Simple Example
Last year the business invoiced around:
$400,000 per month.
Customers generally paid in about 30 days.
That meant there was usually a substantial amount sitting in receivables.
Now monthly sales have increased to:
$520,000.
That’s 30% growth.
Excellent.
But customers still pay after roughly the same period.
The business now naturally carries more outstanding invoices.
Even if everybody pays perfectly, growth has increased the amount of cash trapped in the debtor cycle.
More Sales Can Mean More Money You Haven’t Received Yet
This is the part that’s easy to miss.
Revenue appears in the business accounts.
But the customer hasn’t necessarily paid.
Suppose you invoice $100,000 today.
That’s revenue.
But if the customer pays in 45 days, you don’t have the $100,000 today.
Meanwhile, you may already have paid the costs required to generate that revenue.
That’s the working-capital gap.
Growth Usually Increases Costs First
Imagine an Alstonville food producer wins several new wholesale customers.
To service them, the business needs:
more ingredients,
more packaging,
more employees,
more freight,
more storage,
and potentially more equipment.
Those expenses increase immediately.
The new wholesale customers pay in 30 or 45 days.
The business therefore funds the expansion before receiving the cash generated by it.
That’s why rapid growth can put enormous pressure on liquidity.
Transport Businesses See the Same Thing
A transport operator adds another major customer.
Now the business has more:
diesel,
driver wages,
truck kilometres,
servicing,
tyres,
and invoices outstanding.
The trucks are busy.
Revenue is rising.
But the business may need considerably more cash every week.
Growth isn’t free.
So Is the Bigger Debtor Ledger Good or Bad?
We need to look underneath it.
Suppose last year:
Monthly sales: $400,000
Debtors: $420,000
Now:
Monthly sales: $520,000
Debtors: $550,000
That might simply reflect growth.
But imagine instead:
Monthly sales: $520,000
Debtors: $900,000
Now we need to investigate.
Why have receivables increased so much faster than sales?
Look at Debtor Days
This follows directly from our Albion Park article.
If customers previously paid in 32 days and now average 55 days, the growing debtor ledger isn’t only a sales-growth story.
Customers are getting slower.
That matters.
The business is funding customers for longer.
Look at the Ageing
Return to the aged debtor report.
Is the increase sitting primarily in:
current invoices?
Or:
60-, 90- and 120-day invoices?
A growing current balance can be completely normal when sales are increasing.
A rapidly growing overdue balance deserves attention.
Healthy Growth Might Look Like This
Revenue is increasing.
Current receivables are increasing.
Customer payment behaviour is stable.
Overdue percentages remain controlled.
Margins remain healthy.
The business has won additional profitable work.
That’s potentially a growth-funding requirement.
The business may simply need more working capital to support a larger operation.
Unhealthy Growth Might Look Like This
Revenue is increasing modestly.
Receivables are increasing rapidly.
Customers are paying later.
Disputes are increasing.
Credit notes are rising.
Old invoices are accumulating.
The business is borrowing more simply to compensate for poor collections.
That’s a different problem.
Finance shouldn’t be used to disguise it.
Sales Growth Can Hide Weak Credit Control
When a business is busy, administration can fall behind.
Everyone focuses on:
selling,
delivering,
installing,
driving,
manufacturing,
servicing customers.
Invoices go out late.
Overdue accounts aren’t followed up.
Customer queries sit unanswered.
Credit limits aren’t reviewed.
The business appears successful because sales are increasing.
Meanwhile, the cash conversion cycle deteriorates.
Don’t Celebrate Revenue Without Looking at Cash
Revenue is important.
Profit is important.
Cash is also important.
A business can fail while making accounting profits if it cannot meet its obligations when they fall due.
That’s why growth planning needs to include cashflow planning.
When somebody tells me:
“We’ve grown 40% this year.”
one of my next questions should be:
“What has happened to your cashflow?”
Look at Gross Margin Too
Not all growth is good growth.
Suppose revenue rises 30%.
But to win the additional work, the business cuts prices.
Overtime increases.
Freight costs rise.
Additional employees are required.
Equipment is hired.
Customer terms become longer.
The business is doing considerably more work but producing little additional profit.
That’s not necessarily growth worth financing.
Bigger Isn’t Automatically Better
Imagine two businesses.
Business A
Revenue: $3 million
Healthy margins
Customers pay reliably
Moderate debt
Strong cashflow
Business B
Revenue: $5 million
Thin margins
Customers pay slowly
Large equipment commitments
ATO debt increasing
Constant working-capital pressure
Which business would you rather own?
Turnover alone doesn’t answer that.
Calculate the Cash Cost of Growth
Suppose you’re planning another 25% increase in sales next year.
What additional costs occur before customers pay?
Calculate:
wages
materials
inventory
fuel
subcontractors
freight
insurance
rent
equipment
marketing
administration
Then compare those costs with the expected customer payment cycle.
That’s the cash required to support the growth.
What Happens if Sales Double?
This is a useful stress test.
If sales doubled next month, could the business fund the work?
That sounds like a wonderful problem.
It can become a terrible problem very quickly.
A contractor might win two large projects simultaneously.
Now wages double.
Materials double.
Subcontractor costs increase.
But customer payments are still 30 or 45 days away.
Without sufficient working capital, the business may actually have to turn profitable work away.
Winning the Contract Isn’t the Same as Funding the Contract
This is one of the central ideas in this entire journey.
A business owner can be excellent at winning work.
That doesn’t automatically mean the balance sheet can support it.
Every new contract should trigger two questions:
Can we deliver it?
and
Can we fund it?
Both matter.
What If You Need More Employees?
Employees usually need to be paid before customers pay.
Suppose the expansion requires five additional employees.
The business may have several payroll cycles before the first customer receipt arrives.
And employment costs extend beyond wages.
Allow for applicable:
superannuation
PAYG obligations
workers compensation
leave
overtime
allowances
recruitment
training
Growth needs to fund the whole employment cost.
What If You Need More Stock?
Wholesalers and retailers face another problem.
You may need to purchase inventory before you can sell it.
Then after selling it, a commercial customer may still have 30-day terms.
The cash cycle becomes:
buy stock ? hold stock ? sell stock ? invoice customer ? wait for payment.
That can be considerably longer than the invoice term alone.
Agriculture Can Have Long Cash Cycles
Around Alstonville and the Northern Rivers, agricultural and food-related businesses may face seasonal expenditure well before revenue is received.
Inputs need to be purchased.
Labour is required.
Equipment operates.
Freight occurs.
Production happens.
Then customers pay according to their own commercial terms.
Working-capital planning needs to reflect the whole operating cycle.
Equipment Purchases Can Make Growth More Cash Hungry
The business is growing.
So you buy:
another truck,
tractor,
forklift,
excavator,
van,
or piece of manufacturing equipment.
Excellent.
But how did you pay for it?
If the business used $150,000 of cash that was previously supporting working capital, growth pressure can become much worse.
Eligible assets may potentially be financed separately.
Don’t automatically empty the bank account because the business can afford to buy something outright.
Think About Multiple Assets Before You Buy the First One
Perhaps growth means you’ll need:
three vehicles over six months,
two forklifts,
a new production line,
or several pieces of plant.
Tell us the whole plan.
Depending on the lender and transaction, multiple eligible assets may potentially be considered together or through broader asset-finance facilities.
Other lenders may assess each purchase individually.
The structure depends on the circumstances.
But knowing the capital expenditure plan early can help us investigate appropriate options.
Growth Can Also Increase ATO Obligations
More sales can mean more GST collected.
More employees can mean greater PAYG and superannuation obligations.
If the business is already tight for cash, those amounts can become tempting working capital.
That’s dangerous.
The business uses tax money to fund growth.
Then the BAS becomes due.
The money isn’t there.
Now the business has created ATO debt.
The underlying issue may still be insufficient working capital.
Don’t Fund Permanent Growth With Temporary Fixes
The business needs another $150,000 every month to support its larger operating cycle.
So the owner:
uses a credit card,
extends supplier payments,
uses personal savings,
delays tax,
then takes a small short-term loan.
That may keep the business moving temporarily.
But the underlying requirement hasn’t disappeared.
If growth has permanently increased the working-capital requirement, the funding strategy needs to recognise that.
Could Debtor Finance Support Growth?
Potentially.
For businesses with eligible commercial receivables, debtor or invoice finance can sometimes provide funding linked to eligible invoices.
As eligible invoicing grows, the funding base may potentially grow within the approved facility structure and limits.
That’s one reason debtor finance can be relevant to growing businesses.
The facility is connected to the asset that’s expanding:
the debtor ledger.
But eligibility, concentration, advance rates, limits, fees and structure vary between lenders.
Compare That With a Fixed Business Loan
Suppose the business borrows $200,000.
That creates $200,000 of cash.
But if the business continues growing rapidly, the working-capital requirement might eventually become $300,000.
Then $400,000.
The original loan doesn’t automatically increase because sales increase.
That’s not necessarily a reason to avoid a term loan.
It simply shows why the type of funding needs to match the nature of the requirement.
What About a Revolving Facility?
A revolving facility may also be worth considering depending on the business.
If the working-capital requirement rises and falls, having access to an approved limit can potentially provide flexibility.
Different facilities have different:
limits,
repayment structures,
fees,
security requirements,
and assessment criteria.
Again, start with the cashflow problem.
Then investigate the product.
Growth Can Improve Finance Options Too
It’s not all negative.
A business that’s:
increasing revenue,
maintaining margins,
collecting customers reliably,
and building a stronger trading history
may become more attractive to certain lenders over time.
Good growth can strengthen the business.
The goal is to make sure cashflow survives long enough to benefit from it.
Build a 12-Month Growth Cashflow
If substantial expansion is planned, don’t only forecast profit.
Forecast cash.
Month by month, estimate:
sales,
customer receipts,
wages,
materials,
stock,
tax,
loan repayments,
equipment purchases,
and other major expenses.
Identify when the business reaches its lowest cash position.
That’s where funding planning becomes useful.
Stress-Test the Forecast
Then make it harder.
What happens if:
sales are 10% lower?
customers pay seven days later?
diesel rises?
a major machine breaks?
the new employee costs more than expected?
a customer delays a large order?
You don’t need to predict everything perfectly.
The exercise tells you how much tolerance exists.
Build the Facility Before the Crisis
A business owner sometimes waits until:
the bank account has $4,000,
payroll is tomorrow,
and a $90,000 customer payment hasn’t arrived.
Then they need finance today.
That’s a much harder conversation.
If you know the business is about to grow substantially, investigate the working-capital requirement before the growth arrives.
What Should You Send Us?
If sales are growing and cash is getting tighter, useful information can include:
aged debtor report
aged creditor report
recent financial statements
current management accounts
recent BAS
business bank statements
monthly sales history
major customer contracts
current working-capital facilities
existing asset finance
upcoming equipment purchases
growth forecast
We don’t necessarily need every document before having an initial conversation.
But the numbers help us diagnose what’s happening.
Business Growth Finance Around Alstonville
Businesses around Alstonville and the Northern Rivers can operate across agriculture, food production, transport, construction, trades, wholesale and professional services.
Growth can be an excellent sign.
But increasing sales often means the business has to fund more activity before customer payments arrive.
The larger the business becomes, the larger that cash requirement can become.
That’s why a growing debtor ledger isn’t automatically bad.
The important question is:
Is the ledger growing because the business is successfully selling more, or because customers aren’t paying?
Those two situations require very different responses.
Sales Are Growing but Your Bank Account Isn’t?
Send Thrive Broking the aged debtor report, recent sales figures and an outline of how quickly customers actually pay.
If you’re also adding employees, buying equipment, taking on larger contracts or accumulating ATO debt, tell us that too.
We can start by separating:
healthy growth funding
from
cashflow problems that finance alone won’t fix.
Then we can investigate working-capital and debtor-finance options that may suit the business.
Growth should create a stronger business. If every additional dollar of sales makes cashflow tighter, it’s time to understand what the growth is actually costing you.