Why am I making profit but running out of money?

What to watch for

Five things that change the call when you’re trying to figure out why the cash is tight.

1. The cash conversion cycle is the load-bearing number, not your bank balance. Your bank balance is a snapshot; your cash conversion cycle is the structural picture. The formula is straightforward: days customers take to pay you (DSO), plus days stock sits before selling (DIO), minus days you take to pay your suppliers (DPO). A 60-day cycle means there are 60 days of operating activity sitting between cash going out and cash coming back. Multiply that by your average daily sales and you have your working-capital requirement — the cash you need to fund yourself just to operate, before any growth or profit. If that number is bigger than the cash you actually have available (including overdraft headroom), you have a working capital problem regardless of how profitable the business is on paper.

2. Growth makes working capital worse before it makes it better. Most operators expect cash flow to improve as sales grow. Counter-intuitively, the opposite is usually true in the short term: a business growing at 30% per year typically needs more working capital, not less, because the growth in receivables, stock, and work-in-progress outpaces the cash coming back from previous sales. The Reserve Bank of New Zealand has noted that working-capital borrowing remains high in retail, wholesale, and hospitality precisely because these sectors carry inventory and receivables that scale with sales. If you’re growing fast and feel cash-poor, the working capital squeeze is structural — chasing debtors harder won’t fix it on its own; you may need a financing tool that matches the way you trade.

3. Slow payers are not always the problem you think they are. “My customers pay slowly” is the first thing most operators reach for when cash is tight. Sometimes it’s the real answer; often it isn’t. Compare your DSO to your stated payment terms — if you offer Net 30 and your DSO is 35 days, you’re broadly on target and tightening collections won’t move the needle much. If you offer Net 30 and your DSO is 65 days, your collections process is the lever. The accountancy industry consensus is that DSO running 25% or more above stated terms signals a real receivables problem worth fixing; below that, the squeeze is probably coming from somewhere else (stock, supplier terms, or structural growth). Aged receivables reports in your accounting software break the average down so you can see whether it’s one slow customer dragging the number or a systemic pattern.

4. The 2%/30 discount maths often surprises operators. A common offer in B2B is “2% discount if paid within 30 days, otherwise full price at 60 days.” Translated: you can have the cash 30 days earlier for a 2% cost (i.e. paying at day 30 instead of day 60). Annualised, that’s about a 24% effective interest rate to your supplier — much higher than any overdraft or invoice finance facility you’re likely to access. Working in the other direction, if a customer offers you the same deal and you accept it, you’re paying 24% annualised for cash flow. Whether to take or offer these discounts depends on what your alternative cost of capital actually is — but operators routinely take the discount without doing the maths, treating “2%” as small when annualised it’s substantial.

5. The lever you pull depends on which front the squeeze is on. Once you know whether the problem is receivables (customers slow), payables (paying suppliers too fast), inventory (cash sitting in stock or WIP), or structural (growing faster than internally-generated cash can fund), the lever set is different. Tighter credit policies and earlier follow-ups fix receivables. Negotiating longer payment terms (without burning supplier relationships) fixes payables. Better inventory discipline — running leaner, identifying dead stock, holding less safety buffer — fixes inventory. A working capital facility (overdraft, invoice finance, term loan, revenue-based finance) fixes structural gaps where the business needs more cash than it generates from operations alone. Pulling the wrong lever wastes time at best and damages relationships at worst — chasing customers harder when your real problem is over-stocking just annoys good payers and leaves the stock sitting there.

Where this entry stops

This entry maps the four fronts and routes you toward the right lever. It doesn’t cover:

• Chasing specific unpaid invoices. If you have customers who’ve gone past terms and aren’t responding, the process for escalating from reminders to formal debt-collection and Disputes Tribunal action is its own decision. See chasing unpaid invoices.
• Setting up invoice finance or factoring. The decision of whether to use invoice finance is one this entry helps frame; setting up a facility, choosing between providers, and negotiating fees is specialist territory. Talk to your accountant before signing any invoice finance contract; the fee structures (typically 1-5% of face value plus interest, with minimum-volume requirements) vary widely and the cheapest provider on headline rate isn’t always cheapest in practice.
• Bank overdraft or term loan applications. If you’re talking to your bank about a working capital facility, your accountant can prepare the financial pack the bank will want. This is operational territory the wayfinder routes out of.
• Restructuring supplier payment terms at scale. Renegotiating terms with multiple suppliers is a commercial negotiation, not a finance decision. Worth doing carefully — the relationship cost of pushing terms too hard can outweigh the working capital benefit. Specialist territory if your suppliers concentration is high.
• Solvency-adjacent decisions. If the working capital squeeze is severe — you genuinely can’t pay wages or critical suppliers and don’t see how that changes in the next 30-60 days — you’ve crossed into solvency-adjacent territory and director-duty obligations under the Companies Act 1993 start to apply. Stop optimising working capital and call an insolvency practitioner registered with RITANZ. The cost of an early consultation is meaningfully less than the cost of trading through a solvency problem.
• Detailed cash flow forecasting. Building a 13-week cash flow forecast that integrates receivables timing, supplier payment timing, payroll, tax payments, and ad-hoc costs is operational work most operators do with their accountant or in their accounting software. The forecast is the diagnostic tool; this entry is the framework for interpreting what it tells you.

If your cash is tight and you’re not sure which of the four fronts is actually causing it, your accountant or bookkeeper can usually tell you in under an hour — they have the data in front of them. Going in with the four-front framework (“is this receivables, payables, inventory, or structural?”) makes that conversation faster and more useful than walking in with “things feel tight.”

Last verified 27 May 2026 against business.govt.nz working capital guidance, Stats NZ Business Performance Benchmarker, Reserve Bank of New Zealand commentary on SME working-capital borrowing, current Xero Analytics Plus and Syft integration documentation, ANZ Bizhub working capital content, and Companies Act 1993 director-duty provisions for the solvency-adjacent scope-stop. Full source list: references. The conceptual framework (cash conversion cycle, DSO/DIO/DPO, four-front lever analysis) is stable; the accounting-software capability landscape is moving fast and will need refreshing as Xero, MYOB and competitors ship more native cash-flow analytics through 2026.