Why profitable companies still run out of cash

Every new sale tied up more cash in inventory and receivables. Credit decisions relied on individual judgment, customer limits were inconsistent, and reporting only showed what was already overdue.

It presented as a collections problem, and collections was where the effort went. The problem was upstream: limits were being set on commercial optimism rather than financial capacity, and no single function owned a receivable from approval through to payment. Sales, finance and operations each saw part of it; nobody saw the whole.

1. Approval criteria that do not move

   Consistent criteria for approving credit, so the answer does not depend on who is asked or how good the quarter looks.

2. Customer risk, assessed structurally

   A structured assessment of customer risk, with limits set against financial capacity rather than commercial optimism.

3. A line between sales and finance

   Responsibilities clarified between the function that wins the sale and the function that carries the exposure, so a receivable has an owner from approval to payment.

4. Reporting that warns

   Reporting rebuilt to surface emerging risk before it reaches cash flow, rather than listing what has already gone overdue.