When a business grows, receivables absorb cash even if customers pay on time
15 October 2026, 09:23
On 14 October, in Toulouse, the chief executive of Airbus's commercial aircraft division, Lars Wagner, said the group will soon decide whether to increase production of the A350. The current assembly line is designed for 12-13 aircraft a month: going beyond that would require a second line.
When a large customer increases production, those who sell it components also have to produce and deliver more. In the supplier's profit and loss account, growth means more revenue. In cash terms, for a while, it means money to be advanced: this is working capital growing with turnover.
Extra sales are collected later, expenses are paid first
Working capital is the money tied up in day-to-day operations: receivables from customers and stocks, minus payables to suppliers. Every invoice issued remains a receivable until it is paid. Every part produced and not yet sold remains in stock.
When turnover grows, receivables and stocks grow too: there are more invoices waiting to be paid and more parts in production. Meanwhile, wages go out every month, and part of the raw materials is paid for before the customer pays. Payables to suppliers also rise, covering some of the requirement. The rest is cash the company advances from its own resources. This is why a business can close the year with higher profit and less money in its current accounts than a year earlier.
This happens even if no customer pays later than usual. Collection times stay the same; what increases is the number of invoices waiting to be paid in the meantime.
The extra receivables are measured with the average collection period
The indicator is DSO (Days Sales Outstanding), the average number of days between issuing an invoice and receiving payment. It is calculated by dividing receivables from customers, excluding VAT, by the year's turnover, and multiplying by 360.
An example. A business that makes moulds for plastics has a turnover of €7 million a year, and its customers pay on average at 90 days, that is, after a quarter of the year. If turnover rises to €9 million and payment times do not change, a quarter of the extra sales remains to be collected: receivables grow by €500,000. That money has to be found in the bank account or from the bank, even though no customer has paid late.
The typical mistake is to take growth for slower collection
Receivables from customers change for two different reasons. The first is volume: more has been sold, with the same DSO. The second is days: payments arrive later, even with turnover flat.
To separate them, an intermediate value is calculated: what receivables would be worth today with current turnover and last year's DSO. The difference between this value and receivables twelve months ago is the effect of growth. The difference between today's actual receivables and the intermediate value is the effect of the days.
The most common mistake is to treat the whole increase in receivables as a collection problem. If they have risen only because more has been sold, chasing buyers or tightening payment terms is the wrong response, because customers are paying as before. Chasing payments makes sense when DSO has risen.
There is also the opposite mistake: putting everything down to growth without looking at the days. If DSO has gone from 90 to 100, part of the requirement comes from slower collections, and that is the part that can be recovered.
Before accepting more orders, work out how much cash they require
When a customer announces higher volumes, the calculation to make before accepting them has three lines. Estimate the extra receivables: the additional sales, multiplied by DSO and divided by 360. Add the extra stocks. Subtract the extra payables to suppliers, because the company too pays for its purchases a few weeks after the invoice. The result is the cash that has to be found.
The requirement that comes from growth cannot be squeezed, because it comes from the sales themselves: it has to be financed. It is worth presenting it to the banks before it is needed, rather than discovering it in the current account halfway through the year. Repeated every month as part of controlling, the same breakdown shows whether working capital is following turnover or whether payments are changing.
In the year-end accounts, the first signal comes from two percentages: how much receivables have increased and how much turnover has. If they rise by the same proportion, DSO is unchanged and the requirement is entirely growth. If receivables rise faster, part of it is slower collection.
This article was prompted by a news item published in Reuters on 14 October 2026.