Growth and better collections can move cash in opposite directions.
A higher revenue run rate usually changes receivables, inventory and payables even when their timing remains constant. This model first calculates that growth effect, then applies changed collection, inventory and supplier days at the new revenue level. The two effects add exactly to the total capital change.
A reduction in DSO releases receivables cash at the scenario credit-sales rate. Inventory and payables use their own COGS and credit-purchase bases. The resulting cash effect is a transition between steady-state balances; this calculator does not assume that the entire release happens in a particular month.
The formula, made clear.
- Growth effect
- Capital at scenario revenue and unchanged days, less current capital.
- Terms effect
- Capital at scenario revenue and scenario days, less capital at scenario revenue and unchanged days.
- Receivables release
- Scenario daily credit sales × (current DSO − scenario DSO); positive means cash released.
- Sign convention
- Positive incremental capital needs cash; negative incremental capital releases cash.
Put the numbers in context.
The default baseline requires $675,000.00 trade capital. At 20% higher revenue and unchanged days, $135,000.00 more is required. Reducing DSO from 60 to 45 days releases $180,000.00 at the new sales rate, leaving a net $45,000.00 cash release.
| Input | Example value |
|---|---|
| Current annual revenue | $3,650,000.00 |
| Scenario annual revenue | $4,380,000.00 |
| Revenue sold on credit | 100% |
| COGS as a share of revenue | 40% |
| Credit purchases as a share of revenue | 35% |
| Current collection days | 60 days |
| Current inventory days | 45 days |
| Current supplier payment days | 30 days |
| Scenario collection days | 45 days |
| Scenario inventory days | 45 days |
| Scenario supplier payment days | 30 days |
| Annual day basis | 365 days |
| Incremental trade capital required | -$45,000.00 |
What this calculation assumes
Annualized steady-state comparison; credit-sales share, COGS/revenue and credit-purchases/revenue ratios stay constant. All modeled balances are trade receivables, inventory and trade payables; other operating assets, accruals, tax, deferred revenue, bad debts and non-operating items are excluded. Ratios can exceed 100% for losses or purchasing build-up. A transition can take time and can have inventory/payment constraints. No month-by-month cash timing or ability to enforce better terms is inferred.
Methodology references
What to consider next.
Use a realistic transition timetable before inserting any release or need into the monthly cash forecast. Check whether customer behavior, purchasing volumes and supplier agreements support the assumed days.
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