There is one truth that many managers discover too late, often in a meeting with their banker or when faced with an unexplained overdraft. A company can be profitable, post good sales figures, fill its order books, and then find itself in suspension of payments. This apparent paradox is not an accounting accident. It is the result of a misunderstanding of three fundamental concepts that govern the financial health of any structure: cash receipts, cash disbursements and working capital requirements. These three concepts are intimately linked, often misunderstood, and mastering them literally makes the difference between a company that is growing and one that is dying.
In France, more than 30 % of bankruptcies are due to cash flow problems, often exacerbated by poor management of the operating cycle. This figure, taken from Altares 2024 data, is not anecdotal. It says that the majority of companies that die do not die from a lack of ideas or a bad product. They die from misreading their own cash flow.
Cash receipts: what you actually receive, and when
Cash receipts refer to all the real money that comes into your bank account. Not your issued invoices. Not your book sales. The money that actually arrives. This distinction is crucial, and lies at the heart of most of the financial misunderstandings experienced by managers of VSEs and SMEs.
When you invoice a customer for 10,000 euros with a payment term of 60 days, your accounts will record a sale. Your bank account, however, remains unchanged for two months. It's this time lag between sale and collection that creates cash flow pressures. And these tensions are systematic, not exceptional.
According to research by the Banque de France's Observatoire des délais de paiement in 2024, the average payment delay in Europe remains above 11 days, reaching more than 14 days in certain sectors such as construction and specialised distribution. These delays are not accidents. They are part of the normal functioning of the economic fabric. What is abnormal is not anticipating them.
Your cash receipts depend on three variables that you need to monitor constantly: the payment terms granted to customers, your actual collection rate and the seasonality of your business. A forecast cash flow monitoring table, updated every week, is the simplest and most powerful tool you can put in place to stop being surprised by your own cash flow.
Disbursements: what you actually pay out, and how quickly
Disbursements are the actual outflow of money from your account. Salaries, social security contributions, rent, suppliers, loan repayments, VAT: everything that leaves your cash position, when it actually leaves. Here again, the distinction between accounting commitments and actual disbursements is fundamental.
You sign a contract with a supplier for €5,000 worth of raw materials. The debt is incurred on delivery. But the disbursement only takes place when payment is actually made, in accordance with your negotiated terms. It is this delay, between the debt and the payment, that is one of your most accessible financial management levers.
Too little cash generates not only a direct financial cost, but also stress, a significant loss of time and a feeling of powerlessness for the manager. This description, taken from an analysis in the CEO's blog, is more accurate than it might seem. Cash flow pressures are not confined to the financial sphere. It affects your strategic decisions, your ability to invest, your relationships with suppliers and your attitude to customers. An executive who is short of cash does not negotiate in the same way as a serene executive.
Controlling your cash outflows involves a practical and often under-exploited action: actively negotiating your supplier lead times. Every day's extra lead time granted by a supplier is a day's cash saved. This is not opportunism. It's management.
WCR
Working capital requirements are an essential indicator for any entrepreneur. It is the amount of money that the company needs on a permanent basis to finance its operations. WCR corresponds to the cash shortfall arising from the company's day-to-day operations.
Its calculation formula is precise and accessible to any manager without advanced accounting training. The working capital requirement is calculated as follows: WCR equals inventories plus receivables minus current liabilities. In other words, you take what you have tied up in your business, and deduct what your partners are temporarily financing for you.
A positive WCR indicates that the company is blocking part of its cash flow. A negative WCR, which is more unusual, means that the company is obtaining part of its financing from its partners.
Retail is a perfect example of negative WCR. In the retail sector, trade receivables are low or non-existent, inventories are limited due to their rapid turnover, while trade payables are high. This situation is reflected in good management of the operating cycle. The accommodation and catering sector, which often benefits from cash payments from individual customers, will show an average negative WCR of minus 18 days' sales in 2024 for micro-businesses. In contrast, an industrial company or a B2B service agency with customer payment terms of 60 days almost always has a positive WCR, sometimes very high. This is not an anomaly. It's the nature of its operating cycle. What becomes an anomaly is not knowing about it and not managing it.
WCR
WCR is essential, especially if your business is subject to seasonal fluctuations or wide variations in activity. WCR will not be the same every month. For example, it will be higher in November and December than in January, when stocks are sold off. It is necessary to anticipate this difference and to have resources available at that time. This observation by Grégory Krumbank, partner at Walter France, points to a common blind spot: many managers calculate their WCR once a year, at the time of closing the accounts. This is largely insufficient.
Another approach is more useful for cash flow forecasts, particularly when the SME is looking to expand or is going through a phase of steady growth. It is preferable to reduce the WCR to a number of days' sales. This is the concept of normative WCR, which allows you to project the future level of WCR in euros as a function of sales targets. This is an excellent way of looking ahead before seeking financing.
In practice, calculating your WCR in days of sales gives you a much more useful management indicator than a sum in euros. A WCR of 45 days means that 45 days of sales are tied up in the operating cycle. This figure enables you to compare your situation with that of your sector, to measure your evolution over time and to anticipate your financing needs during a growth phase.
The relationship between WCR and cash flow: the equation you need to know
The basic equation is: cash equals working capital minus working capital requirements. This equation is valid in every balance sheet in the world.
What this formula says in concrete terms is essential: your cash flow is not independent of your WCR. It is a direct result of it. If working capital is greater than WCR, the company does not need to borrow to operate, because it has accumulated sufficient reserves and has positive cash flow. If, on the other hand, working capital is less than WCR, the company will have to find financing solutions.
Let's take the example of a growing start-up: permanent capital of 800,000 euros, fixed assets of 900,000 euros, negative working capital of minus 100,000 euros, positive WCR of 150,000 euros. The net cash position is therefore minus €250,000. Critical situation: fixed assets are partially financed by short-term resources. This scenario is more common than you might think. And it often affects fast-growing companies, whose managers are surprised to find themselves short of cash even though their order books are full.
Three practical ways to optimise your working capital today
The first lever is to reduce your customer lead times. A study by the French Association of Credit Managers in 2024 showed that an average reduction of 5 days in the DSO can improve cash flow by 3 to 4 % of annual sales.Five days. That's the time you get back by sending your invoices on the day of delivery rather than the following day, by systematically sending reminders at least 5 days before the due date, and by offering discount conditions for early payment.
The second lever is optimising your stocks. According to a McKinsey study in 2024, a 10 % reduction in stocks can free up to 5 % of additional cash flow, with no negative impact on customer service, provided that it is carefully managed. This means analysing your stock rotation by reference, identifying dormant products and adjusting your supplier orders accordingly.
The third lever is negotiating your supplier lead times. According to a 2023 EY study, companies that include their suppliers in a collaborative approach to WCR management reduce the cash flow pressures associated with peaks in activity by 20 %. The key is to negotiate upstream, in a partnership rather than a power struggle, to obtain deadlines that are adapted to your operating cycle.
WCR
Beyond these three levers, the most lasting transformation is cultural. Managing working capital is not just a matter for finance. It concerns sales people, buyers, logisticians and even managers. Instilling a culture of cash management means making people understand that every operational decision has a financial impact. Companies that succeed are those that break down barriers.
In practical terms, this means that your sales rep who grants extra time to pay in order to sign a contract is making a financial decision, even if he doesn't see it as such. Your purchasing manager who orders three months' stock to obtain a volume discount is making a financial decision. Everyone in your company contributes to your WCR, positively or negatively.
According to Gartner, by 2024, companies that have digitalised their working capital management will improve their net cash position by an average of 15 to 25 % over two years.Tools such as a ERP tailored to SMEsa cash flow management software or simply a well-constructed monthly dashboard in Excel are all you need to take this step without massive investment.
Conclusion: cash flow is not a result, it's a choice
Managing your cash receipts, controlling your cash disbursements and steering your WCR are not skills reserved for the finance directors of large companies. They are management reflexes that any manager, whatever the size of their organisation, can develop with the right tools and the right reading of their own figures.
The lack of cash flow, sometimes due to a lack of foresight and management, explains a large number of failures of small and medium-sized businesses in France. SMEs traditionally find themselves squeezed between late-paying customers and suppliers in a hurry to receive payment for their invoices.
You don't have to be part of these statistics. Start by calculating your current WCR. Identify your main bottlenecks. Act on one lever at a time. Healthy cash flow is not the result of good luck or a favourable sector. It's the product of daily attention to these three fundamental elements that your business generates every day, whether you look at them or not.
