Take a food exporter, invented for the purpose. It sells on 60-day terms, holds about 90 days of inventory, and pays its own suppliers at 30. Cash goes out roughly 120 days before it comes back. The business is profitable every single month, and every single month it is also owed more money than it owes. That is not a paradox. That is what working capital is.
Now let the business grow 20 per cent. Every number in that cycle grows with it: more inventory bought ahead, more receivables outstanding, the same 120-day wait on a bigger base. The income statement announces good news. The bank account reports something else. Most working capital conversations go wrong because the two reports arrive in different meetings.
The standard presentation—debtor days, creditor days, stock turn, three ratios on a slide—is tidy, and the thing it describes is not. Ratios are averages, and averages are where the information goes to hide. The practical lens is the habit of reading through each ratio to the behaviour underneath.
Receivables are customer behaviour
A receivables balance is not an asset that ages evenly. It is a list of specific customers, each with a payment habit, a negotiating position, and a degree of leverage over the business.
So the useful questions are behavioural. Which customers are drifting from 45 days to 60—and is the drift policy or distress? Does one customer's payment run decide whether the month ends comfortably? Are extended terms being quietly traded for volume, so that growth is being purchased with the balance sheet and booked as revenue? Our exporter can report identical debtor days for two straight years while the composition underneath moves from ten balanced customers to three dominant ones. The ratio will not mention it.
Payables are borrowed patience
Creditor days get described as "free funding". More honestly, they are patience borrowed from suppliers, on terms the supplier controls. Stretching payables works until a key supplier tightens terms, asks for cash ahead, or reprices—usually at the exact moment the business can least absorb it, because supplier patience and business stress run out together.
Direction matters more than level. Payables stretching because the business negotiated better terms is strength. Payables stretching because the cash was not there is a countdown, and suppliers usually know which one it is before the bank does.
Inventory is a set of past decisions
Inventory is where optimism goes to sit. Every over-forecast, every bulk discount accepted, every product line nobody had the heart to kill—it accumulates in the warehouse, valued at cost, looking like an asset. Stock turn averages the fast-moving lines with the mistakes, and the average conceals the mistakes.
One question separates disciplined operators from the rest: what is the process by which slow stock gets identified, marked down, and cleared—and when did it last actually run? A business that answers with a date has inventory discipline. A business that answers with the gross margin story does not.
The ninety-day habit
Ask what happens to cash in the next ninety days if nothing heroic occurs. No new customer lands, the price increase does not go through, the slow stock does not suddenly clear, everyone pays the way they have actually been paying. Run it forward.
The point is not pessimism—the heroic case can be discussed afterwards, on its merits. The point is sequencing. A conversation that starts from the unheroic ninety days is about a real business; one that starts from the upside is a negotiation about a story. Why growth widens this particular gap is the subject of Growth vs Financeability.
One caveat, learned by misusing it: ninety days is a default, not a law. For a project business or a lumpy exporter—three large shipments a year, say—any fixed ninety-day window lands arbitrarily and will look either alarming or flattering depending on where it falls. The discipline is choosing the window that matches the actual cycle and holding the heroics out of that. The habit is the unheroic assumption, not the number.
Two vocabularies, one business
Working capital is also where two well-intentioned parties most reliably lose each other. The operator experiences it as timing: the season, the shipment, the customer's payment run. The bank experiences it as structure: a facility limit, a covenant calendar, ratios measured on fixed dates. Both descriptions are accurate, and they are not synchronised—so a quarterly test date landing mid-cycle can make the same business look strained on paper and normal in operation at the same moment.
I have written up the two versions of this that recur most: the 90-day mismatch, where covenant timing and trade-cycle reality drift apart, and what the Q2 financials don't show, where a seasonal business is read at the wrong point in its cycle.
What resets these conversations is rarely reassurance. It is plain language about three things: the actual conversion cycle, in days, for the real product mix; the concentrations—which customer, which supplier, which market; and what breaks first under stress. An operator who can speak to those three, and a banker who asks about them before quoting structure, usually discover that most of the disagreement was two vocabularies describing one business.