Cleveland S-Corp, $6.8M revenue. Drawing credit line every month despite being profitable. Debtor days 42 to 19. $420K released. Credit line retired.
01The Situation
A Cleveland S-Corp with $6.8M revenue was drawing on its revolving credit line every month despite being profitable. Customers paid in 45 to 60 days while suppliers were paid in 18 days. The owner was financing his customers's businesses with his own cash and borrowing from the bank to do it.
02What We Did
We audited every customer account for days outstanding and payment history, drafted new payment terms with a discount for early payment, and renegotiated terms with the six largest suppliers from net 18 to net 45. The combined effect compressed the cash conversion cycle from 42 to 18 days. Credit line retired by October.
Breakdown
| Working Capital Lever | Baseline Jan 2024 | Outcome Dec 2024 | Impact | Status |
|---|---|---|---|---|
| Debtor Days average | 42 days | 19 days | -23 days | |
| Creditor Days average | 18 days | 38 days | +20 days | |
| Cash Conversion Cycle | 42 days | 18 days | -24 days | |
| Working Capital Released | not applicable | $420,000 | Freed from operations | |
| Credit Line Balance | $380K drawn | $0 | Fully retired | |
| Gross Margin | 34.6% | 38.0% | +3.4 percentage points |
The business was never struggling, it was just poorly timed. Fixing the timing freed enough cash to fund the next 2 years of capex from operations with no bank required.
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