Cash Is King

"Cash Is King" — Navigating Financial Turbulence at VerdeKrishi

You’ve probably heard the phrase “Cash is King.” It’s not just a clever saying — it’s a brutal business truth. You can show profits on paper, impress investors with projections, even gain popularity in your market. But if your cash runs out, you are out of business.

Think of cash as the oxygen of your business. You might be running a profitable factory or selling fast-moving products - but the moment your bank balance can’t support your next purchase, salary, or power bill, the business starts gasping.

So how does this play out in real life?

Let’s walk through a simple, relatable case, a hypothetical one - one that mirrors what many MSMEs in India, especially in places like Assam, experience as they grow fast but fall short on cash control.

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In the bustling city of Guwahati, Assam, VerdeKrishi Pvt ltd. had carved a niche for itself in the agro-based food processing industry. Founded by the ambitious Abhijit Gogoi, the company aimed to bring packaged organic produce from Assam’s farms to urban households across India. Within two years, the company boasted a revenue of ₹8 crore, a strong presence in regional supermarkets, and a growing online customer base.

One afternoon, Abhijit called for a meeting with his CFO, Rupa Deka.

Abhijit: "Rupa, our revenue has doubled in the last year! We're finally getting noticed. Profits are showing on paper too. Time to think about expansion!"

Rupa: "Hold on, Abhijit. I just checked our bank balance — it's dipping fast. We're paying vendors upfront, but our customers take 45-60 days to pay us. We might be profitable, but our cash position is weak."

Abhijit: "How are we running short of cash with so many orders?"

Rupa (pulling out a printed dashboard): "Abhijit, I know the orders are pouring in and our books show profits, but here’s the problem - the money isn’t actually in our bank. It’s caught up elsewhere. Let me show you how.”

She places three simple charts on the table - one for inventory, one for payments from customers, and another for payments to suppliers.

Rupa (pointing to the inventory chart): “First, we buy raw materials and packaging - usually in bulk. Once the stock arrives, it often sits in our warehouse or shop shelves for about 50 days before we even sell it. That’s money we've spent, sitting in bags and boxes, not in our account.”

Abhijit (nodding): “Okay, that’s fair. We're holding stock to meet demand.”

Rupa: “Right but then comes the second part. After the product is sold — especially to our retail partners or distributors — they don’t pay us immediately. Most of them take 55 days, sometimes more. So now, even after a sale, we wait nearly two months to see the cash.”

She pauses and continues, more slowly.

Rupa: “That means, from the day we pay our vendor for raw materials, it takes about 105 days - 50 days sitting in inventory, plus 55 days waiting for the customer’s payment - before that money comes back to us.”

Abhijit’s eyebrows raise slightly. "And we’re still paying our own vendors within...?"

Rupa (pointing at the third chart): “Within 20 days. So, cash is going out much faster than it’s coming in. We’re paying for raw materials in three weeks but recovering that money only after three months.”

She flips to a calculation sheet.

Rupa: “This is what we call the Cash Conversion Cycle - how long it takes for ₹1 we invest in production to make its way back into our hands. For us, it’s 85 days right now. That’s nearly three months where our money is locked in the system.”

Abhijit (leaning back): “Three months?! So, the faster we grow, the more we starve ourselves of cash?”

Rupa: “Exactly. We’re pouring money into growth - buying more stock, making more sales - but without adjusting how we manage the flow of money, we’re choking ourselves. It’s like earning well but being stuck in a cycle where you always pay upfront and get paid last.”

Abhijit (still absorbing the 85-day cash gap):
“This is worse than I thought. So, we’ve got a successful product line, satisfied customers, strong demand - and still we’re struggling for cash. How exactly are we even staying afloat?”

Rupa (grimly): “Through short-term working capital loans - mostly from the bank. And honestly, it’s getting tight. I checked with our accounts team yesterday. Our cash credit limit is already 85% utilized.”

She opens a spreadsheet with their monthly interest outflows.
“We’re paying an average of 12.5% per annum on these working capital loans. If you break that down, that’s over ₹1 lakh a month just in interest. And this isn’t funding any expansion or R&D -it’s just helping us survive the delay between payments.”

Abhijit (frowning): “So the more orders we get, the more stock we buy, the more we sell… the more we borrow?”

Rupa: “Yes. We’re feeding a loop. Our growth is being financed with debt, not with operational efficiency. That’s dangerous.”

Abhijit (rubbing his temple): “And no investor will like that either. We always talk about profit margins in our investor deck - 18%, even 20% some months. But after interest payments…”

Rupa (finishing his sentence): “…it drops to 12% or less. And that’s before accounting for late fees, missed vendor discounts, and the stress on the team from juggling cash every week.”

Abhijit: “I remember last month we delayed payment to our packaging vendor by ten days. He called me directly. That’s the kind of reputational risk we don’t capture on a balance sheet.”

Rupa (nodding): “That’s exactly it. The cost isn’t just financial. We’re losing negotiating power, credibility, and peace of mind. And here’s the irony - we could avoid a lot of this without needing more sales. If we just manage the flow better.”

Abhijit (curious): “How? We can’t just ask customers to pay earlier. Retailers don’t like upfront terms.”

Rupa (thinking aloud): “True, but there are levers. We haven’t optimized our inventory holding. Do we really need to stock 50 days’ worth of materials? And maybe we can renegotiate supplier terms. Even extending our DPO from 20 to 30 days would reduce the cash pressure.”

Abhijit (considering): “That’s one week less of interest. Across ₹50 lakhs of monthly procurement, that’s significant.”

Rupa (pointing to her screen): “I ran a scenario. If we improve our inventory turnover and bring inventory days down from 50 to 35 days, and also extend DPO from 20 to 30 days, our CCC would drop from 85 to 60 days. That’s 25 fewer days of needing bridge finance.”

Abhijit: “And at 12.5% annual interest, saving 25 days of loan dependency every cycle is real money.”

Rupa (calculating): “Exactly. It could save us around ₹30,000–₹40,000 a month in interest. That’s nearly ₹5 lakhs a year. And that money could go into marketing, training, or just improving liquidity.”

The next few days, Rupa and Abhijit sat at a stretch and devised a plan to improve their liquidity status. Together, they devised a plan:

• Inventory Optimization: They reduced the number of SKUs by 20% and streamlined sourcing practices, which shortened the average time inventory sat unsold in their warehouse—from 50 days down to 35 days.

• Better Credit Terms: They renegotiated contracts with key suppliers, securing 30-day payment terms instead of paying within 20 days, giving them more breathing room before cash left the business.

• Faster Collections: By offering a 3% timely payment discount to retail clients, they encouraged quicker payments, bringing down the average time customers took to pay from 55 days to 40 days.

• Cash Flow Forecasting: Rupa worked with the finance team to implement a 12-month rolling cash flow projection, enabling initiative-taking planning and early identification of shortfalls.

• Invoice Financing: They started using invoice discounting through digital platforms to access cash against pending receivables, helping bridge short-term gaps without piling on expensive debt.

After six months, the average time cash was tied up in the business dropped from 85 to 45 days - improving liquidity significantly and freeing up nearly ₹60 lakhs in working capital.

Abhijit (reflecting): “You know, when we started this business, I thought the hardest part would be selling. But managing cash… it’s a different beast.”

Rupa (smiling): “Sales bring revenue. But cash flow keeps the lights on. "Now we know - cash flow isn't a back-office concern. It's a boardroom priority."