Why profitable Dutch companies may still experience cash pressure

A company can be profitable and still run short of cash.

According to research published by Allianz Trade, the global cash conversion cycle increased again in 2025 to more than 67 days. This is approximately three days longer than the ten-year average and four days longer than the average before 2020.

The increase may appear modest. However, it indicates a structural change: companies need to finance their operations for longer before expenditure is converted back into available cash.

For foreign-owned companies operating in the Netherlands, this makes working capital management increasingly important.

What is the cash conversion cycle?

The cash conversion cycle measures the time between spending money on operations and receiving payment from customers.

It consists of three elements:

• Days Inventory Outstanding: how long cash remains invested in inventory;
• Days Sales Outstanding: how long customers take to pay;
• Days Payable Outstanding: how long the company takes to pay its suppliers.

In simplified terms:

Cash conversion cycle = inventory days + customer payment days – supplier payment days

A longer cycle means that more financing is required to support the same level of business activity.

This may be funded through available cash, shareholder financing, bank facilities or extended supplier credit. Each option has financial and operational consequences.

Inventory is becoming the main issue

The Allianz Trade report shows that the principal structural pressure is no longer simply late payment by customers.

Companies are holding more inventory.

Global inventory periods remained around 53 days in 2025, compared with approximately 48 days before the pandemic. Inventory now accounts for almost 80% of the global cash conversion cycle.

There may be good commercial reasons for this.

Companies have moved from a strict “just-in-time” model towards a “just-in-case” approach. Larger inventories can protect against:

• geopolitical disruption;
• interrupted supply chains;
• longer transportation times;
• shortages of essential materials;
• sudden changes in tariffs or trade policy;
• dependence on a limited number of suppliers.

Operational resilience has value. However, inventory must still be purchased, stored and financed.

The warehouse therefore increasingly becomes part of the financing requirement.

The effect on Dutch companies

Working capital pressure increased in Western Europe during 2025. Inventory accumulation was an important cause.

Germany is particularly relevant. Its average cash conversion cycle increased to almost 79 days. As Germany is the Netherlands’ largest trading partner, developments there can also affect Dutch suppliers, distributors and group companies.

A Dutch company may experience pressure where:

• German or other European customers reduce orders or postpone projects;
• customers request longer contractual payment terms;
• the company maintains additional local stock;
• goods remain in transit or storage for longer;
• suppliers require faster payment;
• the company must finance VAT before collecting customer invoices;
• the parent company expects the Dutch subsidiary to fund its own growth.

These pressures are particularly relevant to manufacturing, construction, machinery, automotive supply, chemicals, electronics and businesses with international supply chains.

Allianz Trade reports cash conversion cycles of approximately 103 days for construction and machinery and equipment businesses globally. In parts of these sectors, a quarter of companies have cycles exceeding 140 days.

Growth can increase cash pressure

Working capital problems are not always caused by declining business.

Rapid growth can create the same problem.

A growing company may need to:

• purchase more materials;
• recruit additional employees;
• pay subcontractors;
• maintain larger inventories;
• incur travel and project costs;
• pay VAT and payroll taxes;
• wait several weeks or months before invoicing;
• wait again before the customer pays.

Revenue and profit may increase while the available bank balance decreases.

This is why a profit forecast alone is not sufficient. Management also needs a cash-flow forecast and a clear view of the working capital cycle.

A longer cycle is not automatically negative

An increase in working capital can be a deliberate commercial decision.

Additional stock may protect an important customer relationship. Longer payment terms may help win a contract. A bulk purchase may result in lower prices or greater supply certainty.

The relevant question is therefore not simply whether working capital has increased.

Management should understand:

• why it increased;
• how much cash is involved;
• how long the increase is expected to continue;
• whether the commercial return justifies the financing cost;
• whether sufficient funding is available;
• what happens if sales develop more slowly than expected.

Without this analysis, a strategic investment in resilience can gradually become excess inventory, overdue receivables or structural dependence on shareholder funding.

Practical steps for management

A useful working capital review should look beyond the year-end balance sheet.

Management should consider the following measures.

Prepare a rolling cash-flow forecast

A forecast covering at least the next 13 weeks can identify short-term pressure before it becomes urgent.

For companies with seasonal activity, long projects or significant inventory, a twelve-month forecast may also be necessary.

Analyse receivables by customer

Total trade receivables provide limited information.

An ageing analysis should identify:

• invoices that are not yet due;
• invoices that are overdue;
• disputed invoices;
• customers that regularly pay late;
• concentrations involving one major customer;
• balances that may no longer be recoverable.

Customer collection procedures should begin before an invoice becomes seriously overdue.

Review inventory critically

Inventory should be separated into:

• inventory required for confirmed orders;
• strategic or safety inventory;
• slow-moving inventory;
• obsolete inventory;
• project-specific materials;
• goods held on behalf of other group companies.

This helps distinguish commercial resilience from inefficient use of cash.

Coordinate purchasing and sales

Purchasing decisions are often made separately from financial planning.

A larger order may reduce the unit price but still be unattractive when storage, obsolescence and financing costs are considered.

Finance, sales and operations should therefore review the cash consequences together.

Manage supplier terms carefully

Delaying supplier payments can temporarily improve cash flow, but it is not a complete working capital strategy.

Repeated late payment can result in:

• damaged supplier relationships;
• reduced credit limits;
• advance-payment requirements;
• interrupted deliveries;
• loss of early-payment discounts.

Where possible, payment terms should be agreed commercially rather than extended unilaterally.

Include VAT and tax payments

A cash-flow forecast should include Dutch VAT, payroll taxes and corporate income tax.

VAT can create particular pressure where output VAT becomes payable before the customer has paid the underlying invoice. This is common in businesses with long customer payment terms or project delays.

Agree the group funding position

A foreign-owned Dutch subsidiary should know whether temporary funding will be provided by the parent company.

Intercompany financing should not be arranged only when the local bank balance is nearly exhausted.

The group should agree:

• the expected funding requirement;
• the form of the financing;
• the applicable interest rate;
• repayment terms;
• transfer-pricing support;
• required corporate approvals;
• whether withholding tax or other tax issues arise.

Proper documentation is particularly important where funding becomes structural rather than temporary.

Accounting information should support cash decisions

Annual accounts are necessary, but they are not designed to manage short-term liquidity.

A useful financial reporting process should allow management to monitor:

• revenue and gross margin;
• operating expenses;
• trade receivables;
• overdue customer balances;
• inventory levels;
• trade payables;
• VAT and tax liabilities;
• expected cash receipts and payments;
• available group or external financing.

This information should be available throughout the year, not only when the annual accounts are prepared.

How Kanso helps

Kanso Accounting helps foreign-owned companies establish a clear and practical Dutch finance function.

We can assist with:

• monthly accounting and reporting;
• receivables and payables analysis;
• VAT and tax-payment planning;
• cash-flow forecasts;
• management reporting;
• inventory and balance-sheet reviews;
• intercompany account reconciliations;
• coordination with the parent company;
• annual accounts and Dutch filing requirements.

The objective is not simply to record what has happened.

Good accounting information should help management understand where cash is tied up, why it is tied up and what action may be required.

See also Netherlands Country Risk Report | Allianz Trade