You’re growing. Clients are signing. Revenue looks healthy on paper. The P&L shows profit. But every time you check the bank balance, there’s that familiar knot in your stomach. Where is all the cash?
This isn’t unusual for B2B software companies scaling from ₹20 crores to ₹100+ crores. Revenue growth often creates a bizarre paradox: the more you sell, the tighter cash feels. The problem isn’t your business model or your sales team. Working capital management holds the answer, and most founders don’t realize how much cash already sits trapped inside their operations, waiting to be freed.
You don’t need complex financial engineering or more capital. You need to make operational decisions differently so growth releases cash instead of consuming it. Let’s break down exactly where your cash is hiding and how to get it back.
What Is Working Capital Management (And Why Software Companies Get It Wrong)
Working capital management is the art of managing the cash gap between when you spend money to deliver services and when you actually receive payment from clients. In simple terms, it’s the cash you need to keep operations running while waiting for invoices to get paid.
For manufacturing companies, this concept is straightforward. They buy raw materials, make products, sell them, and collect cash. The inventory is visible. The cash cycle is obvious.
Software and services companies misjudge working capital management because their “inventory” is invisible. Your inventory is people on the bench, partially completed projects, unbilled work, and invoices sitting in client approval queues. Unlike physical inventory gathering dust in a warehouse, cash trapped in operations feels abstract, so founders don’t treat it with the same urgency.
Here’s the core mistake: Revenue booked is not cash received. You might close a ₹50 lakh deal in March, but if you bill milestone-based over six months and clients take 60 days to pay each invoice, you won’t see the full cash until November. Meanwhile, you’ve already hired three people to deliver that project. You’re paying salaries in April, but collecting cash eight months later.
This timing mismatch is where cash gets trapped. When you’re growing fast and signing multiple deals simultaneously, the gap compounds. That’s why profitable software companies often feel cash-starved.
The Hidden Places Where Cash Gets Trapped in Software Operations
Most founders know cash flow is tight, but they can’t pinpoint where the leakage happens. Let’s examine the four major traps.
Delayed Invoicing After Delivery
You delivered a project milestone three weeks ago. The client is happy. But the invoice hasn’t gone out yet because someone in your team needs to reconcile hours, get internal approvals, or wait for a project manager to confirm scope completion.
Pure operational drag creates this delay. Every day between delivery and invoicing is a day your cash stays trapped. In services businesses, manual billing processes, missed milestone tracking, and internal approval bottlenecks routinely add 15-30 days to your cash conversion cycle. That delay costs you real money, especially when you’re managing dozens of simultaneous projects.
Long Payment Cycles from Enterprise Clients
Enterprise clients often negotiate 60, 90, or even 120-day payment terms. Many founders accept these terms during sales conversations without thinking through the cash impact. Once the contract is signed, the payment cycle becomes your reality.
Then comes the follow-up problem. Most software companies are relationship-driven, which is great for client retention but terrible for collections. Founders hesitate to push hard on payments because they don’t want to damage relationships. Finance teams don’t have authority to escalate. The result? Invoices age beyond agreed terms, and cash sits in client accounts instead of yours.
Overstaffing Ahead of Confirmed Revenue
Growth-stage software companies often hire based on pipeline, not confirmed cash inflows. You have three deals in late-stage negotiations, so you hire six people to handle the expected workload. Two deals close, one slips to next quarter. Now you have four people on the bench.
In services businesses, people on the bench are your equivalent of unsold inventory. You’re paying salaries, benefits, and infrastructure costs for employees who aren’t generating billable revenue yet. Cash flows out with nothing coming in, and it’s one of the most common causes of working capital stress in scaling software companies.
Poor Contract Structuring
Many B2B software contracts are structured in ways that destroy cash flow. No advance payments. Back-loaded milestone schedules where most billing happens after delivery. Weak or missing clauses for scope changes. These aren’t just legal details; they’re operational cash decisions made during the sales process.
When contracts don’t include advance payments for onboarding or infrastructure setup, you’re financing your client’s project with your own cash. When milestone billing is structured around deliverables instead of time-based intervals, delays in delivery automatically delay your cash inflows. Every contract you sign either helps or hurts your working capital management, and most founders don’t evaluate contracts through this lens.
Understanding the Working Capital Cycle in B2B Software Companies
Three metrics define how efficiently you convert operations into cash: DSO, DPO, and the cash conversion cycle. These sound like finance jargon, but they’re actually simple operational indicators every founder should track.
What DSO Tells You About Your Collections
Days Sales Outstanding (DSO) measures how long it takes to collect cash after you invoice a client. If your average DSO is 75 days, you’re waiting two and a half months after billing to see the money. For most B2B software companies, DSO sits between 60-90 days. High DSO means more cash is trapped in receivables.
How DPO Affects Your Cash Position
Days Payable Outstanding (DPO) measures how long you take to pay your own vendors and suppliers. If your DPO is 30 days, you’re paying bills a month after receiving them. Higher DPO means you’re holding onto your cash longer before paying it out. You’re not delaying payments unethically; you’re using the credit terms you’ve negotiated intelligently.
The Cash Conversion Cycle Brings It All Together
Cash Conversion Cycle (CCC) is the total number of days between when you spend cash on operations and when you collect cash from clients. In simple terms: CCC = DSO – DPO. A shorter working capital cycle means cash moves through your business faster.
Here’s a real scenario: Your company has a DSO of 80 days and a DPO of 25 days. Your cash conversion cycle is 55 days. That means for every project, you’re financing 55 days of operations out of your own pocket before cash comes back. If you can reduce DSO to 60 days and extend DPO to 35 days, your CCC drops to 25 days. You’ve just freed up 30 days worth of operational cash across your entire business without changing revenue or costs.
Shortening the working capital cycle is one of the fastest ways to unlock cash. A 15-day improvement in CCC on ₹50 crore revenue can free up ₹2+ crore in cash immediately. That’s cash you already earned, just sitting in the wrong part of your business cycle.
How to Free Up Cash Trapped in Operations (Without Cutting Growth)
Fixing working capital management doesn’t mean slowing down growth or cutting essential costs. Smart operational decisions release cash faster. Here’s how.
Fix Your Billing Architecture First
Billing discipline is the foundation of working capital management. If invoices don’t go out promptly, nothing else matters.
Shift to milestone-based invoicing with clearly defined triggers. Instead of “invoice after UAT completion,” use “invoice by the 5th of each month for prior month’s work.” Remove ambiguity. When milestones are time-based instead of deliverable-based, billing becomes predictable and you remove delivery delays from your cash cycle.
Implement monthly billing discipline across all projects. Even for fixed-price contracts, structure billing to happen monthly. Regular cash inflows result from this approach, and you reduce the size of receivables sitting unpaid at any given time.
Always include advance payments for onboarding, setup, or infrastructure provisioning. A 30% advance at contract signing immediately improves your cash position and signals client commitment. Standard practice in well-run services businesses includes this approach—it’s not aggressive.
Strengthen Accounts Receivable Management
Collections shouldn’t be an ad-hoc finance activity. Clear ownership and operational rhythm make the difference.
Assign specific people to own accounts receivable management, with authority to follow up with clients. Finance teams who lack client relationships can’t handle this alone. The best model is joint ownership: account managers maintain relationships, but finance tracks aging and escalates when needed.
Conduct weekly AR review meetings where you go through every invoice over 45 days old. Not monthly. Weekly. This cadence keeps receivables from aging into problems. Identify patterns: which clients always pay late, which internal processes cause delays, where follow-up is inconsistent.
Build client-wise aging dashboards that show receivables by client, project, and age bucket. When founders can see exactly where cash is stuck, they make different decisions about which clients to prioritize, which contracts to restructure, and where to invest collection effort.
Rethink Delivery & Staffing Decisions
The biggest working capital mistake in services businesses is hiring based on pipeline instead of confirmed revenue. Staffing ahead of growth feels conservative, but it destroys operational cash flow.
Align hiring decisions with confirmed cash inflows, not projected deals. Wait until contracts are signed and advance payments arrive before adding headcount. Yes, this might mean saying no to some opportunities or managing delivery timelines more carefully. But the alternative—carrying bench costs while waiting for deals to close—is far more expensive.
Actively work to reduce bench time by improving utilization predictability. Better pipeline management, more realistic delivery estimates, and sometimes using contract or part-time resources for short-term needs instead of full-time hires all help.
When you connect staffing decisions directly to cash inflows, you stop financing growth with working capital. Growth starts funding itself.
Use Payables Strategically (Not Emotionally)
Many founders pay vendors early out of goodwill or habit, without realizing they’re giving away cash flow advantage.
Negotiate smarter payment terms with vendors. If you’re a valuable client, most vendors will offer 30-45 day terms. Use them. There’s no virtue in paying immediately when you have negotiated credit terms. You’re not delaying payments unfairly; you’re using the accounts payable strategy that vendors already offer.
Avoid early payments unless there’s a clear benefit, like a meaningful discount. “We always pay fast” isn’t a strategy; it’s a cash drain. Build a rational accounts payable strategy based on terms negotiated, not emotion.
The goal isn’t to stretch payables unethically. Stop giving away cash flow advantage unnecessarily while your own receivables take 75 days to collect.
Common Working Capital Management Mistakes Founders Make
Even experienced founders make predictable mistakes when it comes to working capital management.
Confusing Profit with Cash
The most common mistake is treating profit and cash as the same thing. Your P&L might show ₹5 crore profit, but if ₹8 crore is sitting in unpaid receivables and unbilled work, your bank account tells a different story. Profit is an accounting concept. Cash is operational reality.
Delegating Cash Flow Entirely to Finance
Another mistake is handing cash flow responsibility entirely to finance teams. CFOs can track metrics and send reports, but only founders and operational leaders can fix the root causes: billing delays, staffing decisions, contract terms, client payment behavior. Working capital management is a leadership issue, not a finance issue.
Ignoring Operational Cash Flow Indicators
Many founders also ignore operational cash flow indicators until there’s a crisis. They look at revenue growth, profit margins, and client retention, but don’t regularly review DSO, aging receivables, or cash conversion cycles. By the time cash flow becomes urgent, problems are already embedded in dozens of contracts and operational habits.
Chasing Growth Without Fixing the Cash Engine
Finally, founders often chase growth without fixing the cash engine first. Adding more revenue on top of poor working capital management just amplifies the problem. You grow from ₹50 crore to ₹100 crore, but cash stress doubles because the underlying issues scale with revenue.
A Simple Working Capital Framework for Founders
You don’t need complex financial models. A simple, repeatable framework makes working capital management part of how you run the business.
The Three-Part Framework
The framework has three parts: contract design, billing discipline, and cash review rhythm.
Contract design: Before signing any deal, evaluate the cash implications. Does it include advance payments? Are milestones time-based or deliverable-based? What are the payment terms? Can you negotiate better terms without losing the deal? Make working capital management part of your deal review process, not an afterthought.
Billing discipline: Create operational systems that ensure invoices go out immediately when milestones are hit. Remove manual approvals that add no value. Track the gap between delivery and invoicing as a key metric. Treat delayed billing the same way you’d treat a production bug: it’s broken and it needs fixing.
Cash review rhythm: Review working capital metrics weekly, not monthly. Look at total receivables, aging buckets, upcoming payables, and cash runway. When you see these numbers weekly, you make different decisions about hiring, project prioritization, and client management. Monthly reviews come too late.
What to Track Weekly
Founders should review every week: total AR balance, invoices over 45 days old, upcoming large payments due, and current cash runway at the current burn rate. These four numbers tell you whether working capital management is improving or deteriorating.
The metrics that actually matter aren’t complex ratios. Operational indicators drive action: How many days between delivery and invoicing? What percentage of invoices get paid within terms? How many people are on the bench? These metrics drive action, not just analysis.
When you review these numbers weekly, you naturally start making decisions that improve cash flow. You follow up on aging invoices earlier. You push back on contract terms that hurt cash flow. You hire more carefully. Working capital management becomes embedded in how you operate, not a separate finance exercise.
When Working Capital Issues Become a Growth Bottleneck
Poor working capital management doesn’t just create stress; it actively limits growth.
Missing Key Hiring Opportunities
When cash is always tight, you miss hiring opportunities. A great candidate is available, but you can’t extend an offer because you’re not sure when the next client payment is coming. You lose talent to competitors who have better cash visibility.
Founder Energy Drain
Founders spend enormous energy firefighting cash problems instead of focusing on growth, product, or clients. The constant mental overhead of wondering whether you can make payroll, negotiating short-term credit lines, or juggling payment priorities is exhausting. Founder stress compounds over time and affects decision-making quality.
Credit Line Dependency
Many companies become overdependent on credit lines, using debt to cover working capital gaps that shouldn’t exist. Credit lines are useful for short-term timing mismatches, but when you’re perpetually maxed out on working capital loans, you’ve turned an operational problem into a financial dependency.
The Fundraising Alternative
Here’s the most important point: Fixing working capital management often delays or completely avoids the need for fundraising. Many founders raise capital to “improve cash flow,” when the real issue is operational. Investors see this. They’d rather back founders who fix working capital issues operationally than those who try to solve operational problems with investor capital.
Conclusion
Cash problems in B2B software companies are almost always operational, not financial. The cash is already there, earned through client work, sitting in receivables or trapped by poor billing processes, weak contract terms, and misaligned staffing decisions.
Growth should release cash, not trap it. When working capital management is handled well, every new deal improves your cash position instead of straining it. Revenue growth and cash flow move in the same direction, the way they’re supposed to.
Founders who treat working capital management as a strategic priority build businesses that scale profitably without constant cash anxiety. This is fundamentally a leadership capability, not a finance function. The frameworks are simple. The discipline is what matters.
If your business is growing but cash feels tight, this is worth fixing systematically. The cash is already in your business. You just need to free it up.
