Working Capital Management | Why Growing Companies Run Out of Money

Strong sales and respectable profits offer little comfort when a company struggles to pay its suppliers. For Romanian businesses, the way growth is financed can matter as much as growth itself.

A company can report its best financial year and still struggle to meet its payments. Sales have increased, the order book is healthy, customers are satisfied and the income statement shows a profit. Yet the bank account tells a different story. Suppliers want their money, wages fall due, tax obligations approach and another customer has asked for an extension of its payment terms.

For many Romanian entrepreneurs, the contradiction is familiar. They have built profitable companies, sometimes over decades, only to discover that commercial success does not always translate into financial security.

The explanation often lies in working capital: the money a business needs to finance its everyday operations between paying suppliers and collecting from customers.

As companies grow, that requirement can increase faster than their ability to generate cash. The result is an uncomfortable situation in which a successful business becomes increasingly dependent on bank facilities, supplier patience and the owner’s personal intervention.

Profit is an accounting result. Cash pays the bills.

The distinction between profit and cash flow appears straightforward, but its consequences are frequently underestimated.

A manufacturer records revenue when it delivers goods under the applicable accounting rules, even though the customer may pay months later. A distributor purchases inventory before making a sale. A construction company pays employees and subcontractors while waiting for completed work to be certified and invoices to be collected.

These businesses may produce attractive accounting profits while tying up substantial amounts of money in inventories, unfinished work and receivables. Depreciation, capital expenditure, debt repayments and taxes introduce further differences between reported profit and cash available for the business.

A company can therefore be profitable without generating enough cash to support its activities, particularly during rapid expansion. The difficulty becomes more pronounced when customers negotiate longer payment terms while suppliers insist on earlier settlement. Each additional day between paying for goods and collecting from customers increases the financing requirement. Large customers often have the negotiating strength to impose these conditions. Their smaller suppliers effectively finance part of their operations, frequently without recognising the full cost of doing so.

The problem is not confined to Romania. PwC’s Working Capital Study 2025/26 found that net working capital days in the European Union had risen by 9.5% since 2015, with inventories contributing significantly to the deterioration. The findings illustrate how cash can remain trapped in ordinary business operations even in established companies.

When growth becomes a financial burden

Romanian businesses have spent much of the past three decades pursuing expansion. Larger customers, additional contracts, new warehouses and higher production capacity have generally been regarded as signs of progress. For a properly financed business, they usually are. For one operating with limited capital reserves, however, growth can become a source of financial stress.

A new customer may generate attractive margins but demand generous payment terms. A larger order may require additional raw materials, higher inventories and more employees before the first invoice is collected. Entering a new market may involve deposits, transport costs and investment months before revenues arrive.

The business grows on paper while the cash requirement grows immediately.Under these circumstances, turnover can become a misleading measure of success. Additional sales are valuable only when the company can finance them and eventually convert them into cash at an acceptable return.

An entrepreneur who accepts every profitable-looking order may inadvertently commit the company to obligations it cannot finance.

This is particularly dangerous when growth depends on a small number of powerful customers. The commercial relationship may look secure, but a change in payment behaviour can quickly place the supplier under pressure.

Atradius reported in its July 2026 assessment that more than half of Romanian business-to-business sales take place on credit, above the Central and Eastern European average. This widespread dependence on trade credit makes payment discipline an important element of financial resilience.

The hidden cost of financing customers

Offering customers credit is a normal part of business. Problems begin when the company provides more credit than its financial resources can comfortably support.

A customer who pays after ninety days rather than sixty does more than delay an invoice. The supplier must finance another month of operations, often using borrowed money or postponing payments elsewhere. As borrowing costs accumulate, the apparently attractive commercial margin becomes smaller.

Some companies respond by delaying payments to their own suppliers. The practice may temporarily protect liquidity, but it shifts the pressure along the supply chain and can eventually damage relationships, purchasing terms or access to essential materials.

Others rely increasingly on overdrafts, short-term loans and repeated extensions of credit facilities. These instruments can be appropriate for seasonal or temporary working capital requirements. They become problematic when they finance permanent needs that the company has never properly measured.

Coface reported that Romanian insolvency proceedings increased by 12.36% in the first half of 2026 compared with the corresponding period of 2025. That figure reflects broader economic pressures, not merely poor working capital management. It nevertheless illustrates an environment in which companies have less room to absorb payment delays and financial mistakes.

The central issue is whether a business understands how much of its cash is permanently committed to its operating cycle.

Refinancing can solve a structural problem — or postpone it

When liquidity becomes tight, owners often approach their bank for additional credit. Sometimes that is exactly the right decision.

A business with sustainable earnings and predictable cash generation may simply have an unsuitable financing structure. Investments in buildings, machinery or equipment may have consumed working capital that should have remained available for everyday operations. A short-term facility may be supporting an enduring financing requirement. Loan repayments may no longer correspond to the cash generation profile of the business.

In such circumstances, refinancing can restore financial balance. Longer maturities for investment debt, properly sized working capital facilities and a realistic repayment schedule can reduce pressure without undermining the business.

Other instruments, including factoring, may also improve liquidity by accelerating collections from customers. Their usefulness depends on the quality of receivables, costs, contractual conditions and the risks retained by the company.

Yet additional borrowing is not always the answer.

If the business consistently loses money on its core operations, carries excessive inventory, extends credit to unreliable customers or distributes cash that should remain in the company, refinancing alone will not restore financial health.

The distinction matters. A sound business with an unsuitable debt structure needs a financing solution. A company whose activities consume more money than they can generate may need operational changes, additional equity or a broader restructuring.

Confusing the two can leave the owner with more debt and the same underlying problem.

The figures owners should examine before asking for more credit

Understanding a company’s liquidity requires looking beyond annual profit and the balance at the bank.

The first question concerns the operating cycle. How long does it take to sell inventory, collect receivables and pay suppliers? How much money remains tied up in that cycle, and how does the requirement change as sales grow?

Next comes cash generation. Can the business fund normal investment, meet its debt repayments and retain enough liquidity to withstand delayed customer payments or a weaker trading period?

These questions require a reliable cash flow forecast, ideally covering the coming thirteen weeks in detail and a longer period for financing and investment decisions.

Management must also understand the difference between temporary fluctuations and permanent financing needs. Seasonal inventories may justify short-term credit, while a continuing expansion of working capital may require a more durable combination of debt and equity.

Banks will examine these matters when assessing credit applications. Owners have even stronger reasons to understand them before a refinancing becomes urgent.

A healthy business is one that can finance its normal operations, meet obligations when due and invest without repeatedly relying on emergency measures.

Financial discipline creates room for growth

Romanian entrepreneurs have demonstrated considerable commercial ability, often building successful companies with limited capital and little external support. That achievement deserves recognition. As businesses become larger and more complex, however, financial management must evolve alongside commercial activity.

The next stage of development requires greater attention to cash conversion, customer payment behaviour, investment timing and the relationship between debt and available cash flow.

A company that improves these areas may discover that it needs less external financing than previously assumed. Another may find that refinancing is necessary to preserve a viable business and prepare it for further growth.

The important point is to establish which situation applies before making another commitment.

Profit demonstrates that a business can create economic value. Cash flow determines whether it can finance its activities and survive long enough to realise that value.

For company owners, understanding the difference is an essential part of protecting what they have built.

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When profitability is no longer enough

BWC Mergers works with business owners to assess working capital management, cash generation, requirements, debt capacity and refinancing options. An independent financial review can establish whether liquidity pressure arises from the operating cycle, the financing structure or deeper weaknesses that require attention.

For companies facing increasing pressure despite satisfactory commercial results, an early assessment can preserve options that may disappear once financing becomes urgent.

Discuss your company’s financing options with BWC Mergers: https://bwc-mergers.com/contact/