Working-capital loans: explain the gap between sales and collections
A profitable sale can still create a cash shortage when payment arrives after suppliers and wages are due. A working-capital explanation should show the timing gap, not merely the turnover total.
Build a cash-conversion calendar
Track when stock is purchased, when customers are invoiced and when money is actually collected. Include supplier credit, customer advances and overdue receivables. Separate recurring operating gaps from losses that fresh borrowing would only postpone. Ask what evidence and repayment structure a lender needs for the proposed facility. A forecast should use realistic collection dates rather than every invoice's ideal due date.
A worked situation
A business pays a supplier in 15 days but collects from its customer in 60 days. The 45-day gap needs a funding plan even if the sale earns a margin. If collections instead arrive in 90 days, the cash requirement is different without any change in invoiced sales.
Your next-step checklist
- Use actual collection history
- Separate overdue invoices from dependable receipts
- Stress-test a slower customer-payment cycle
Does high turnover eliminate a cash shortage?
No. Turnover records sales activity, while the ability to meet payments depends on when cash is received and what obligations fall due before then.
Official references and further reading
These links help you check current information. A provider-specific page describes that provider’s process; it is not a universal eligibility rule or a claim of partnership.
General educational information, not a personalised credit recommendation. Examples use assumed inputs. Rates, charges, eligibility and documents vary; confirm your own lender’s current written terms.