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Cash is king — receivables are not cash
Your books say you made a great month. Your bank account says you can't cover payroll. Both are true — because the sales are real but the money hasn't arrived, and the account, not the ledger, is what keeps the doors open.
Purchasing power — cash plus available credit — is what keeps you alive. The day you run out, it's game over regardless of how many sales are on the books. Receivables are IOUs: they feel like money but pay no bills until collected. Cash is king; a receivable is a promise.
- Speed the inflow: collect faster, reduce the credit you extend, and try to get paid up front — even before you buy materials. You're a business, not a bank.
- Slow the outflow: negotiate longer payment terms with suppliers so cash stays with you longer — useful to fund marketing before the bill comes due.
- Track what's actually collected, never what's merely promised — keep receivables in a separate column from cash.
- Keep a line of credit as backup purchasing power for emergencies only — it makes you resilient, not for routine spending.
You land a 30,000 order but must pay 18,000 for materials upfront and wait 60 days to be paid. That's 18,000 leaving now and 30,000 arriving in two months. Ask for 50% up front and you turn a cash hole into a cash cushion — same sale, opposite survival.
Getting paid up front and stretching supplier terms is leverage in your favor — you can even 'borrow one to make ten,' funding this month's marketing with money you won't owe the supplier until next month. But use it deliberately, and never let backup credit become routine spending.
The deadly habit is booking credit sales as 'revenue,' extending generous customer credit while paying suppliers fast, and celebrating a profitable month right up until the account hits zero. In markets where delayed payment is normal, collection discipline is often the whole difference between survival and closure.
Run your business on the bank balance, not the ledger. Keep receivables in their own column, get paid as early as you can, pay suppliers as late as they'll allow, and never treat a promise as money already in hand.
List every dinar you're owed and its due date, then next to it list every dinar you owe and when. If more is going out before more comes in, phone your two biggest debtors today and ask for a deposit or faster payment.
Why can a business that's profitable on paper still shut its doors — and which two levers on the cash-flow bathtub keep the water level from dropping below the drain?
Read the Money