Revenue Is Not Cash: The Working Capital Gap

Growth consumes cash. You pay staff and suppliers now, and customers pay you later. The faster you grow, the wider that gap and the more cash it absorbs, which is why profitable companies run out of money.

Sizing the Gap

The cash conversion cycle is the number of days between paying for what you sell and being paid for it: days sales outstanding, plus days inventory outstanding, minus days payable outstanding. A services business with sixty-day receivables and biweekly payroll has a gap of roughly two months of cost of delivery, permanently, and it grows in direct proportion to revenue.

The Levers, in Order of How Quickly They Work

• Invoice faster. Unbilled work is the most expensive receivable there is. Bill on milestone completion, not month end.
• Deposits and prepayment. A deposit converts the gap into a surplus. It is a pricing conversation, not a finance one.
• Collections discipline. A named owner, a defined cadence, and escalation on day thirty. Most late payment is inattention on both sides.
• Payment terms out. Negotiating supplier terms is slower but structural.
• A facility sized to the gap. A line of credit is the right instrument for a structural timing difference. Arrange it while the numbers look good.

What to Do

1. Calculate your current conversion cycle. Most founders have never seen the number.
2. Model it at your target revenue and identify the funding requirement.
3. Pick one lever, billing cadence is usually the fastest, and fix it this quarter.

General information for Canadian founders, current to 2026. It is not tax advice and does not account for your specific facts. Rates, thresholds and rules change, confirm the current figures before acting.