Introduction

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After months (or even years) of hard work, you’ve finally landed shelf space at retailers like Pick n Pay, Spar, or Food Lover’s Market—and your product is moving fast. That’s a big win. But with growing sales often comes growing pressure on your cash flow.

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You might suddenly find yourself short on cash for raw materials, packaging, or equipment—just when demand is picking up. Bootstrapping got you this far, but scaling now means being more strategic about how you manage your money.

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Cash Flow Challenges for Food SMEs

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Getting your product onto retail shelves is a big milestone—but for small food producers and manufacturers, it often comes with serious cash flow challenges.

The move into formal retail can open doors for growth. But it also brings new pressures that, if not managed well, can put your business at risk.

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Let’s break it down:
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• Over 34% of small businesses say they wait more than 4 months to get paid by retailers.
• Because of these delays, 72% end up using personal money just to keep the lights on.
• This creates a cash crunch, making it hard to restock, pay staff, or fix equipment.
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On top of that:
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• High inventory costs—especially for perishable goods—and the need to buy in bulk quickly drain cash reserves.
• Only 44% of small businesses use inventory systems, which leads to more waste and running out of stock.
• The cost of meeting retail requirements—like special packaging, food safety certifications, and large orders—can hit suddenly, and hard.
• And external issues like load shedding or even  transport strikes make things even harder. In 2024, 24% of food SMEs said power outages caused serious cash flow problems.
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Understanding Your Cash Flow Cycle
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To stay on top of your money, you need to understand how long your cash is tied up in the business before it comes back in. This is called your cash conversion cycle (CCC).

The cash conversion cycle (CCC) helps you see how many days it takes from:
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1. Buying raw materials (like ingredients and packaging)

2. Producing and delivering your product

3. Getting paid by your customer

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Let’s break that into simple parts:

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Let’s Look at an Example
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Say you’re a small sauce producer based in Gauteng:

• It takes 18 days to turn ingredients into finished product and deliver to stores ( Days Inventory Outstanding (DIO) = 18).
• Retailers take on average 35 days to pay after delivery (Days Sales Outstanding (DSO) = 35).
• You pay your suppliers immediately (Days Payable Outstanding (DPO) = 0).
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So, your cash conversion cycle is:

CCC = DIO + DSO – DPO = 18 + 35 – 0 = 53 days

That means your business needs to fund itself for 53 days before the cash from a sale comes in.

But real life is more complex—what if you sell to more than one retailer with different payment timelines?

Let’s say:
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• Retailer A pays 15 days after invoicing (50% of your sales)
• Retailer B takes 35 days after invoicing (other 50%)

Your average Days Sales Outstanding (DSO) becomes:

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(50% x 15) + (50% x 35) = 25 days

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Now, the amount of days you need to fund yourself for, or your revised cash conversion cycle (CCC) is: 18 + 25 – 0 = 43 days

How Much Working Capital Do You Need?

Once you know your cash conversion cycle (CCC), you can work out how much cash (working capital) your business needs to keep running.

Here’s the formula:

Working Capital = (Annual Cost of Goods Sold ÷ 365) x CCC

Example:
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• Annual Cost of Goods Sold = R1.7 million
• CCC = 43 days
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Working Capital = (1,700,000 ÷ 365) x 43 = R200,274
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So, you’d need around R200,000 available throughout the cycle to keep operations running smoothly.

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⚠️ Keep in mind:

• This doesn’t include salaries, rent, or utilities.
• If your business is growing fast, your working capital needs will also grow.
• Delays in customer payments will make the cash gap even bigger.
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What You Can Do to Improve Cash Flow
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Here are some ways to shorten your cash cycle and improve your working capital:
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1. Speed up the cycle

• Reduce time in production (DIO): Improve forecasting, make smaller batches more often, and avoid overstocking.
• Get paid faster (DSO): Ask for part-payment upfront, or use invoice discounting to get paid sooner.
• Delay payments (DPO): Talk to suppliers about extended payment terms or explore consignment deals.
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2. Improve cash planning

• Use simple forecasting tools to predict your cash needs for the next 90 days.
• Prepare for slow periods—like Q1, when sales may dip by 20%.
• Keep a small cash reserve if you can.
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3. Explore funding options

• Consider revenue-based loans, where repayments are a % of monthly sales.
• Look into grants like the IDC Agro-Processing Support Scheme for equipment upgrades.
• Use invoice or purchase order financing to unlock cash tied up in unpaid invoices or confirmed retail orders—this helps you bridge the gap between delivery and payment.
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4. Adjust how you operate

• Join bulk buying groups with other small producers to cut input costs by around 15%.
• Offer a small discount (e.g., 5%) to customers who pay early. This could reduce your DSO by about 18 days.
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In Conclusion
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If you understand your cash conversion cycle and take steps to improve it, your business becomes more resilient.

With better planning, smart funding, and a few operational tweaks, food SMEs can take control of their cash flow—and grow with confidence in a tough retail environment.

About the Author

Jerome van Innis is the co-founder of Pumpkn—a digital-first lender specialising in SMEs within the agriculture, food, and manufacturing sectors. With over 15 years of experience in consumer goods, agriculture, and SME finance and growth across Europe, Asia, and Africa, he is a recognised expert in the field. Jerome holds an MBA from INSEAD (Singapore) and an MSc in Business Engineering from UCLouvain (Belgium).

Sources
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1. CASHFLOW MASTERCLASS - The Cash Conversion Cycle
2. Tips for Managing Cash Flow in the Food Supply Chain
3. Working Capital Cycle | Formula + Calculator - Wall Street Prep
4. Optimise Your Cash Conversion Cycle to Improve Liquidity
5. 4 Strategies for South African SMEs to Slash Cash Flow Risk
6. Cash Flow Management: Ensuring Financial Stability for a Food ...
7. 4 Simple Cashflow Management Strategies for Small Businesses
8. Cash conversion cycle: Definition, calculation, examples - Agicap
9. CASH FLOW MANAGEMENT PRACTICES: AN EMPIRICAL STUDY OF SMALL BUSINESSES OPERATING IN THE SOUTH AFRICAN RETAIL SECTOR
10. Best Cash Flow Software for Food & Drink Business
11. Managing Cash Flow in the Food and Drink Sector
12. 10 Essential Best Practices for Cashflow Management
13. Trends in Cash Flow Management Among SMEs | Merchant Capital

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