Glossary
The number of days between paying for inputs and collecting cash from customers.
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The number of days between paying for inputs and collecting cash from customers.
It combines days inventory is held, days customers take to pay and days you take to pay suppliers. A longer cycle needs more working capital.
It explains why profitable businesses still run short of cash.
A distributor that holds stock 45 days, collects in 40 and pays suppliers in 30 has a cycle of 55 days.
Wholesalers, manufacturers and contractors usually have the longest cycles.
Reviewers see the effect as gaps between paying out and receiving deposits. A business that can explain its cycle shows it understands its cash flow.
Growth lengthens the cash need: each extra dollar of sales needs more working capital before it is collected.
There are three levers. Hold inventory for fewer days by ordering closer to need. Collect from customers faster with deposits, early-payment discounts and prompt invoicing. Pay suppliers on the last day of their terms, not earlier, unless an early-payment discount is worth more.
Even a few days on each lever adds up. Cutting ten days from a 55-day cycle in a business with $100,000 in monthly costs frees roughly a third of a month of working capital permanently, which can be worth more than any single funding offer.
Funding bridges the cycle while you work on these levers. It should not become the permanent answer to a cycle that keeps lengthening as the business grows, because the cost grows with it.
A Quebec City furniture importer pays its overseas supplier when goods ship, holds stock for about 70 days and gives business customers 30 days to pay. Its cycle is roughly 100 days. Every time sales grow by $50,000 a month, it needs about $165,000 more in working capital before the new sales turn into cash. Knowing that number explains why growth feels like a cash squeeze and how large a facility needs to be.
Key takeaway: Every day removed from the cycle frees cash permanently. Funding bridges the cycle; better terms shorten it.
No, but it can bridge it while you work on terms.
See the related guides and the comparison pages, or apply and ask.
No. It is educational information, and agreements vary.
Educational information only. It is not legal, tax or accounting advice.
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