The cash flow gap and how to fund it

2 min read

Pay out firstCosts before receipts

Get paid laterCustomers settle after

The gapCash tied up in between

Where the gap comes from

You buy materials, pay staff to make something, deliver it, invoice the customer — and then wait 30, 60, sometimes 90 days to be paid. Throughout that wait, the cash you spent is gone but the cash you are owed has not arrived. That interval is the cash flow gap, and it is the reason a profitable, growing business can still run short of money. It is the practical face of the cash conversion cycle.

Why growth widens it

Counter-intuitively, the gap widens as you grow. More sales mean more materials to buy and more wages to pay up front, and more invoices to wait on before the money lands. This is the classic "growing broke" trap — expanding, profitable, and short of cash — and it is exactly the situation working-capital finance exists to fund. See cash flow during rapid growth.

Measuring your gap

You can size the gap in days: your debtor days plus stock days, minus your creditor days. If customers pay in 45 days, stock sits for 30, and you pay suppliers in 30, your gap is 45 days you must finance. Shrink any of those and the gap narrows; the cash it releases is real and yours.

The ways to fund it

You can fund the gap from your own buffer, by tightening the cycle, or with finance sized to bridge it — an overdraft, invoice finance, or a short working-capital facility that funds the timing rather than a loss. The right choice depends on where the cash is stuck; see loan versus invoice finance.

Bridging it cleanly

A facility drawn to cover the gap and repaid as customers pay is a timing tool, not a crutch.

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Frequently asked questions

What is the cash flow gap?

The time between paying out for something — materials, wages — and getting paid by your customer for the resulting sale. During that gap, cash is tied up, which is why profitable businesses can still run short.

Why does the gap get worse as I grow?

Growth means buying more materials and paying more wages up front, and waiting on more invoices before the cash returns. More sales widen the gap, which is the 'growing broke' trap.

How do I fund the cash flow gap?

From a cash buffer, by tightening your cash conversion cycle, or with finance sized to bridge it — an overdraft, invoice finance, or a short working-capital facility repaid as customers pay.