Why an importing wholesaler with €9 million revenue pre-finances almost €3 million and is overdrawn despite making a profit

On the 25th of the month, the managing director of a technical wholesaler looks at two numbers. The monthly report says €22,000 profit. The overdraft facility stands at €1,960,000, with a limit of €2,000,000, and next week the second instalment for a container from Ningbo has to be paid. In March the accountant said it had been a good year.

We see this often at importing wholesalers. The owner usually points at customers who pay late. In the worked example below that is roughly half of the amount tied up; the other half sits in inventory and prepayments that went out of the door months earlier.

For an importer, profit sits in the difference between the purchase invoice and the sales invoice, while the overdraft facility responds to the 162 days between paying the factory and being paid by the customer. The two have little to do with each other. A company can make a 28 percent gross margin on every container and still go deeper into its credit line every month, as long as revenue grows and the payment days stay where they are.

Why the cash conversion cycle in importing is longer than the balance sheet shows

Richards and Laughlin (1980), peer reviewed in Financial Management, introduced the cash conversion cycle as a measure of liquidity: the number of days between the moment a company pays its supplier and the moment the customer pays. The formula is inventory days plus receivable days minus payable days. In English-language reporting these items are called days inventory outstanding, days sales outstanding and days payable outstanding, and the result the cash conversion cycle. A balance sheet ratio such as the current ratio gives a snapshot on 31 December; the cycle measures how long the money is on the road.

For a trading company that buys its goods nearby on thirty-day terms, the formula describes reality well. For an importer buying from Asia, the formula misses two items. The prepayment on order is on the balance sheet as a prepayment on inventory and does not count in any inventory days calculation. And the goods that are at sea for five weeks after shipment are on the balance sheet as inventory, but sit in a container from which no customer can buy anything. In this article we count those two items separately, because for an importer they quickly add up to half a million euros.

ABN AMRO (2026) states on its commercial finance product page that the bank finances around 90 percent of the invoiced amount of outstanding invoices and up to 70 percent of paid inventory consisting of finished products; the page of its inventory finance subsidiary adds the requirement that this inventory is saleable and stored in the Netherlands. Prepayments to a factory and goods at sea appear on neither page. That is a commercial bank page, and the exact conditions differ per bank and per client. At the banks we come across with clients, the mechanism is always the same: what you have not yet received or not yet invoiced, the bank does not finance, even though you have already paid for it.

Kieschnick, Laplante and Moussawi (2013), peer reviewed in Review of Finance, found for US listed companies that an extra dollar invested in net operating working capital is worth less to the average company than an extra dollar of cash, and that this value depends partly on the company's debt and financing constraints. Those are large listed companies, not Dutch SMEs, so the figure cannot be carried over. For the company in this article the translation is simple: every extra day is financed at the overdraft rate, and the overdraft is at its limit.

How €9 million revenue and 122 days become €2.9 million of working capital

In this worked example a technical wholesaler imports half of its purchases from Asia and half from the EU. Revenue €9,000,000 excluding VAT, gross margin 28 percent, so a cost of sales of €6,480,000. The Asian factories ask for a 30 percent prepayment on order and the remaining 70 percent on shipment; lead time from order to shipment is nine weeks, the sea voyage five weeks. The EU suppliers give 42 days on average. The customers are installers, maintenance companies, resellers and a few machine builders, all buying on account.

The accounts give the numbers for the formula. Inventory days 95, calculated over cost of sales. Receivable days 48, calculated over revenue including 21 percent VAT, because the customer pays the VAT as well and so it sits in the receivables. Payable days 21, calculated over total purchases: the EU suppliers give 42 days, the Asian factories zero, and averaged over all purchases that is 21. The cash conversion cycle according to the formula is 95 plus 48 minus 21, so 122 days.

If you multiply those 122 days by revenue per day (€9,000,000 divided by 365 is €24,658), you get €3,008,000. We see that number in many presentations, and it is too crude, because it adds inventory days calculated at cost to receivable days calculated at sales value including VAT. Calculating the items separately gives a lower number for the three standard items and a higher number once the prepayments are added.

The 35 days at sea are included in the 95 inventory days: of the Asian purchases of €3,240,000, on average €310,685 is in transit. That amount has been paid, is on the balance sheet as inventory and is no collateral for the bank, because it is not in the Netherlands and cannot be sold.

The balance sheet of this company therefore looks like this: fixed assets 400,000, inventory 1,686,575, receivables 1,432,110, prepayments 167,770, cash 50,000, a total of €3,736,455. On the other side, equity 1,100,000, payables 372,822, other current liabilities such as VAT and payroll tax 300,000, and an overdraft facility of €1,963,633 against a limit of €2,000,000.

The interest on that overdraft facility is 5.5 percent in this example: according to euribor-rates.eu (market data), three-month Euribor stood at 2.624 percent on 21 September 2026, and we add a margin of 2.9 percentage points, which we see as the usual range for wholesalers of this size. The interest expense is then €108,000 per year. Operating profit before interest is €270,000 (gross margin 2,520,000 minus fixed costs 2,250,000), profit before tax €162,000, corporate income tax (vennootschapsbelasting) at the 19 percent rate on profit up to €200,000 (Belastingdienst, tarieven 2026) €30,780, and net profit €131,220. A healthy company on paper, with a 1.5 percent net margin and an interest expense equal to 82 percent of net profit, sitting among the fixed costs in the monthly report.

How a €100,000 container runs from prepayment to payment

The annual average hides how the days fall per container. In this worked example we follow an order of €100,000 at cost from a factory in Asia, with a sales value of €138,889 and a gross margin of €38,889. The customs value of that container is €108,000: the purchase price plus freight and import duty, the same items that determine the margin per item in Why an importing wholesaler sees a 39 percent margin on an item that yields 25 percent after freight, import duty and currency.

The weighted payment day to the factory falls on day 44 (30 percent on day 0 and 70 percent on day 63). The weighted day of receipt from the customer falls on day 206. In between are 162 days in which the company has spent €100,000 and received nothing. At 5.5 percent that costs €2,441 per container, which is 6.3 percent of the €38,889 gross margin on that same container. In a costing that works with a 28 percent gross margin and leaves interest among the fixed costs, you see that percentage nowhere.

Most importers we see have already dealt with the import VAT in brackets through an article 23 licence; some still pay it to Customs, and the fifth lever further on is about that.

Why you are overdrawn despite making a profit

Net profit of €131,220 plus €60,000 depreciation gives €191,220 of operating cash flow, before anything is done about dividends or loan repayments. If revenue grows by 12 percent next year, the five items from the table grow with it in this example: 12 percent of €2,913,633 is €349,636. The difference is €158,416 that the bank has to finance on top, with an overdraft facility already at 1,963,633 against a limit of 2,000,000.

This is the calculation the managing director from the opening paragraph did not make. The profit is real and so is the growth; the credit line fills up because in this example every extra euro of revenue needs €0.32 of extra working capital and yields €0.015 of net profit. The bank still sees room in the borrowing base of €2,252,022, but that room only exists if the company switches to receivables and inventory finance with the reporting obligations that come with it, and even then the prepayments and the goods at sea stay outside the collateral.

The corporate income tax of €30,780 is already included in that cash flow of €191,220, and the timing does not help in a growth year: the provisional assessment (voorlopige aanslag) for the current year is paid in monthly instalments based on an estimate, usually last year's profit, so most of the amount leaves during the year itself, while the profit it concerns is only fixed in the tax return after the year has ended. How that works out in a disappointing year is covered in Why a transport company in a loss year keeps paying its monthly provisional corporate income tax assessment on last year's profit.

We worked out the same mechanism, growth that outpaces what profit can finance, for an installation company in Why a profitable installation company gets stuck at the bank as soon as it grows faster than its profit allows. For an importer the amount per percent of growth is larger, because the prepayments and the sea voyage come on top.

What the average hides

The 95 inventory days are an average across the whole range, and that average hides where the money sits. In this worked example 60 percent of purchases are A items that sit for 50 days on average and 30 percent are B items that sit for 110 days; the remaining 10 percent are C items that sit for 320 days. Inventory value is then €532,603 for the A items and €585,863 for the B items; the C items come to €568,110. Ten percent of purchases occupies 34 percent of the warehouse, and that part costs €31,246 of interest per year while generating €648,000 of revenue at cost. How to map that C group and when clearing it is cheaper than keeping it is covered in Why a technical wholesaler pays €98,000 every year for €396,000 of inventory that has not moved in twelve months.

The 48 receivable days hide the VAT in a similar way. Of the €1,432,110 in receivables, €248,548 is VAT that the company pays over every quarter, whether or not the customer has already paid. If you calculate your receivable days over revenue excluding VAT, you get a lower number and a lower amount, and you miss that a fifth of what the customer still owes is money for the Dutch Tax Administration that the company has already advanced or will soon advance.

Finally, for a seasonal business the annual average is a number that is right on no single day. An importer of garden products that receives its containers in February and March has a cash conversion cycle in April that is double the annual average, and the credit limit should fit that month.

What an acceptable cash conversion cycle is for an importing wholesaler

Deloof (2003), peer reviewed in the Journal of Business Finance & Accounting, studied 1,009 large Belgian companies over 1992 to 1996 and found that fewer receivable days and fewer inventory days go together with higher profitability; for payable days the relationship was reversed, which he explains by less profitable companies paying later. Banos-Caballero, Garcia-Teruel and Martinez-Solano (2012), peer reviewed in Small Business Economics, found an inverted U for Spanish SMEs: there is an optimal level of working capital, and profitability falls with both too much and too little working capital. What that optimum is in days, they do not say, and they cannot, because it differs per sector and per company.

Atradius (2026), a market report based on a survey of Dutch B2B companies in the second quarter of 2026, reports that Dutch companies use payment terms within thirty days more often than the rest of Western Europe, that payments arrive on average three weeks after invoicing, that just under a fifth of invoices are still outstanding on the due date, and that bad debt write-offs are around 1 percent, with wholesale and SMEs as sectors where this sometimes exceeds 5 percent. The 48 days in this worked example are above the three-week average from that survey. At technical wholesalers supplying installers and maintenance companies, we see 45 to 55 days more often than 21: the contractual term is 30 days and the actual payment day falls two to three weeks later.

The table below shows what we see as workable at importing wholesalers, per stage in the process, and where the line is before it becomes a conversation with the bank.

These are figures from experience, and they apply to a company that sells on account to business customers. An importer supplying webshops that pay in advance will automatically be lower.

How to shorten the cash conversion cycle of an importing wholesaler

Each item in the table above has its own price per day, and those prices differ. In this worked example one day of receivables is €29,836 of working capital and costs €1,641 of interest per year. One day of inventory is €17,753 and costs €976. One extra day of credit from the EU suppliers is €8,877 and yields €488. One percentage point less prepayment at the Asian factories is €5,592 and yields €308. That lets you rank the levers by what they yield against what they cost.

Together the four levers bring the cash conversion cycle in this example from 122 to 90 days and working capital from 2,913,633 to €2,192,942. The overdraft facility then drops from 1,963,633 to around €1,243,000, and the growth year of 12 percent can be paid from the freed-up room instead of from a higher limit.

The order in the table follows the price per day. The receivables lever is at the top because a day of receivables is the most expensive of all days and the measure costs almost nothing, as long as you do not use an early payment discount: 2 percent discount for payment within ten days costs €217,800 per year in this example if all customers take it, against at most €62,358 of interest saved if everyone then really does pay on day ten (38 days times €1,641). How the receivables side works, including the interest the ECB rate rise added, is covered in What the ECB rate rise costs a technical wholesaler that lets its customers pay in 52 days.

The inventory lever yields the most, and it is also the hardest, because the delivery promise depends on it. At importers we see that the fill rate is the most important commercial promise, and every percent of fill rate above 97 costs weeks of extra inventory that has already been paid to the factory. The calculation can then be made per item group: what does a week of extra inventory cost, and what does a lost sale cost. For the A group, in our experience the delivery promise almost always wins that calculation. For a C item that sells three times a year, a two-week lead time is rarely a lost customer.

With suppliers there is a limit that is not in the table: a 2 percent early payment discount for paying within 14 days instead of 60 equals well over 16 percent annual interest, and you never give up that discount to gain €488 per day of credit. The lever works with suppliers that give no discount and do have room in their terms.

According to the Belastingdienst (Dutch Tax Administration), anyone importing goods from outside the EU must file a declaration on import and pay VAT to Customs; with an article 23 licence (vergunning artikel 23) this is not needed for every import and the VAT is reverse-charged to the periodic VAT return. In this worked example the customs value of the Asian purchases including freight and import duty is €3,499,200 and the import VAT on it €734,832 per year. Without a licence the company pays that VAT on arrival and gets it back with a quarterly return on average 75 days later: on average €150,993 advanced, €8,305 of interest per year. With the licence the VAT appears in the same return as deductible and payable and the amount is zero. The liquidity benefit is not on the Tax Administration's page; that is our own calculation. This is the fifth lever. It costs nothing and sits outside the table because most importers we see have already switched. The licence is applied for at the Dutch Tax Administration, well before the first import.

What the law and the tax authorities say

Burgerlijk Wetboek Boek 6, artikel 119a (Dutch Civil Code, Book 6, article 119a) provides in paragraph 5 that parties to a commercial agreement can agree a final payment date of at most 60 days, unless they explicitly include a longer term that is not manifestly unfair to the creditor, and in paragraph 6 that a term of more than 30 days cannot be agreed if the debtor is a large legal entity and the creditor meets the SME criteria of article 2:397 of the Civil Code; a clause contrary to this is void. Without an agreed term, according to paragraph 2, statutory commercial interest is due by operation of law from thirty days after receipt of the invoice. For the importer this means that a large customer with 60 or 90 days in its purchasing terms cannot rely on that clause if the importer itself falls below the SME threshold. We see few wholesalers use this against a large buyer, out of fear for the relationship; it is, however, the strongest card in the conversation about terms.

On the purchasing side the most important arrangement is the article 23 reverse-charge scheme from the previous section, and in addition the ordinary rule that VAT on sales is due for the period in which the invoice was issued, regardless of when the customer pays. There is no Dutch VAT on the prepayment to a factory outside the EU; that only arises on import.

For corporate income tax there is no separate rule for working capital, only the timing from the previous sections: the provisional assessment runs during the year itself, the final assessment follows the tax return. The rates of 19 percent up to €200,000 and 25.8 percent above that are unchanged in 2026 (Belastingdienst).

We do not give tax or legal advice. Questions you can put to your adviser after this article: does our company meet the SME criteria of article 2:397 of the Civil Code, so that paragraph 6 of article 6:119a applies to our large customers; do we have an article 23 licence and is the import VAT in the correct return; which law applies to our contracts with the Asian factories and what does that mean for the prepayment in a dispute; and can the provisional assessment be reduced if the growth year needs more working capital than it yields in profit.

How to calculate this yourself from your annual accounts

The proper method is a monthly calculation per item group and per customer group, from the ERP, with the prepayments and the goods at sea as separate lines. That is the work we do for clients, and we earn our money with it, so weigh our preference for the proper version with that in mind.

The do-it-yourself version takes an afternoon with the latest annual accounts and the December balance sheet. Inventory on the balance sheet, divided by cost of sales from the profit and loss account, times 365, gives inventory days. Receivables divided by revenue times 1.21, times 365, gives receivable days; the factor 1.21 is needed because receivables include VAT and revenue does not. Payables divided by the same cost of sales, times 365, gives payable days. The balance sheet also shows an item for prepayments or prepaid on inventory; that counts as an amount, without converting it to days. The total of inventory plus receivables plus prepayments minus payables, times the interest rate on the overdraft facility, is what the cycle costs per year. In this worked example: 2,913,633 times 5.5 percent is €160,250, of which 108,000 at the bank and the rest in equity that would otherwise have been free.

If you then want to go a step further, split the inventory into the three turnover groups from the section on the average, and the receivables into the five largest customers and the rest. At most companies we see, that shows in an afternoon where the first €200,000 sits.

When this worked example does not apply

The example assumes a company with a full overdraft facility. An importer without bank debt does not pay the 5.5 percent; for that importer the cycle is a choice between working capital and another use of equity, and the calculation then has to be made with the return on that other use, which can turn out lower or higher.

It also does not apply to an importer that sells on a project basis and has its customer pay in advance, or that works on consignment or dropshipping; there the inventory item hardly exists and the customer's prepayment is the lever that decides everything.

Lefebvre (2023), peer reviewed in the International Entrepreneurship and Management Journal, found in a large sample of SMEs in the European Union a positive relationship between the payment period companies give their customers and their growth in revenue and employment, strongest in countries with strict standards for payment terms. That research says nothing about importers specifically, but it does warn against the idea that shorter is always better: a wholesaler that wins customers with 60-day terms that a competitor with 30 days does not get is buying growth with working capital, and that can be a good buy as long as the interest on those days is lower than the margin on the extra revenue. In this worked example, a customer asking for ten days of extra terms brings €100,000 of extra revenue, so €28,000 of gross margin. If only that customer gets the longer term, it costs €182 of interest per year (€121,000 including VAT, ten days, 5.5 percent). If the company has to give the ten extra days to all customers to win that one, it costs €16,410 per year, and even then the margin holds.

The example also assumes stable purchase prices. If you pay for your container four months before you sell it in a market where prices are falling, you have a different problem than working capital; that problem is covered in Why a hardware reseller pays tax on profit it does not have when memory prices rise, in the mirror-image direction.

Frequently asked questions about the cash conversion cycle at an importing wholesaler

How do I calculate the cash conversion cycle of my wholesale business?

Inventory days plus receivable days minus payable days. Inventory days is inventory divided by cost of sales, times 365, and payable days is payables divided by that same cost of sales, times 365. Receivable days is receivables divided by revenue including VAT, times 365, because the customer pays the VAT as well. When you import, add prepayments to suppliers separately as an amount, because they sit outside the formula. In the worked example in this article that is 95 plus 48 minus 21, so 122 days, and €2,913,633 including prepayments.

What is a normal cash conversion cycle for an importing wholesaler?

For importers buying from Asia we see 90 to 130 days as workable and above 150 as a problem; for purchasing within the EU, 50 to 80 days. Research gives no benchmark in days: Banos-Caballero and colleagues (2012), peer reviewed, did find an optimal level of working capital for Spanish SMEs, but it differs per company. The Atradius market report (2026) states that Dutch B2B payments arrive on average three weeks after invoicing, which gives a reference point on the receivables side.

Why is my overdraft facility maxed out while I am making a profit?

Because growth needs working capital before the profit comes in. In the worked example, 12 percent revenue growth needs €349,636 extra in the five items from the table, from inventory to prepayments, while operating cash flow is €191,220. The difference of €158,416 comes out of the overdraft facility. In this example every extra euro of revenue needs €0.32 of working capital and yields €0.015 of net profit.

What does one extra day of customer payment terms cost me?

Revenue including VAT divided by 365, times the interest rate on your overdraft facility. At €9 million revenue and 5.5 percent interest that is €29,836 of working capital and €1,641 of interest per day per year. Eight days shorter frees €238,685 and saves €13,128 of interest. In the same example a 2 percent early payment discount costs €217,800 if all customers take it, so the lever works through invoice date, reminders, phone calls and credit limits; a discount is the expensive option.

Can I reduce the prepayment to my Asian supplier?

With factories that have more than two years of history without incidents, we see that 30 percent can often go to 20 or 10 percent, sometimes against a bank guarantee or a letter of credit costing 0.5 to 1.5 percent of the order value. In the worked example, ten percentage points less prepayment frees €55,923 of working capital and saves €3,076 of interest per year. In euros it is the smallest of the four levers. The risk does weigh heavily, because a prepayment is hard to recover in a dispute under foreign law.

What does an article 23 licence do for my liquidity?

Without the licence you pay import VAT to Customs at the moment of import and get it back in your next VAT return. With the licence the VAT is reverse-charged to your periodic return, where it appears as both payable and deductible at the same time. In the worked example that saves on average €150,993 of VAT paid in advance and €8,305 of interest per year with quarterly returns. You apply for the licence at the Dutch Tax Administration before you import.

Does the bank finance inventory that is still in transit?

According to the ABN AMRO product pages (2026), the bank finances up to 70 percent of paid inventory that consists of finished products, is saleable and is held in the Netherlands, and around 90 percent of invoiced receivables. Goods at sea and prepayments to a factory do not qualify. In the worked example that is €310,685 at sea and €167,770 of prepayments that are paid entirely from equity or the overdraft facility. Conditions differ per bank; check them before you count on the borrowing base.

Further reading: What the ECB rate rise costs a technical wholesaler that lets its customers pay in 52 days, Why an importing wholesaler sees a 39 percent margin on an item that yields 25 percent after freight, import duty and currency, Why a technical wholesaler pays €98,000 every year for €396,000 of inventory that has not moved in twelve months, Why a profitable installation company gets stuck at the bank as soon as it grows faster than its profit allows and The Pareto principle is also a risk gauge for your business. New: Why a technical wholesaler takes a €600 discount on an MOQ of 500 units and loses €1,225 on it. New: Why a food producer with €400,000 profit has €60,869 less in the bank. New: What one day of working capital is worth to a metal supplier with €10 million revenue, and which lever to pull first.

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