Guide

Unit economics and finance

Working capital and receivables

AR, AP and payment terms can fund growth or starve it. Days sales outstanding is a cash number, not a bookkeeping footnote.

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Working capital is the cash tied up in running the operating cycle. For pure SaaS with annual prepay, customers often pay you before you fully earn it — working capital is a source of cash. For businesses that invoice in arrears or hold inventory, working capital consumes cash as you grow.

Concept

Accounts receivable (AR) is revenue you have recognized or billed but not collected. Accounts payable (AP) is money you owe vendors. Days sales outstanding (DSO) is how many days of sales sit in AR.

Walking through AR

Net-30 / net-60 terms create AR. Growing AR consumes cash.

If revenue is $500k/month and DSO rises from 30 to 45:
Extra cash stuck in AR ≈ 500k × (15/30) = $250k

At steady state, net-60 enterprise paper can put two months of billings into AR:

Monthly billings $500k × 60/30 = $1.0M AR outstanding

versus net-0 card billing near $0 AR. Growing on net-60 consumes cash even with great win rates — a unit economics win with a working-capital bruise.

AP is the other side. Stretching payables (carefully, ethically) is a short-term cash source. Paying too slowly destroys vendor trust.

Payment systems and collections ops matter: failed cards, invoice disputes, procurement delays on enterprise deals. A perfect P&L with broken collections is still a cash crisis. See payment systems for the infra angle.

Annual versus monthly, again

Annual prepaid contracts shrink AR and raise deferred revenue. Monthly invoices do the opposite. Early B2B SaaS default: offer both, commission and price to favor annual. Monthly maximizes conversion and matches consumer expectations; it starves cash and makes CAC payback feel worse.

Marketplace payouts that move money to sellers before buyers' payments clear are a classic working-capital trap. You have paid out cash you have not collected.

Common mistakes

  • Winning logos on net-60 and ignoring the $1M stuck in AR. Win rate is not runway.
  • Marketplace payouts before buyer funds clear. You become the customer's bank.
  • Treating AP stretch as a strategy. It is a short-term patch that burns vendors.

Check yourself

Revenue is $500k/month and DSO goes from 30 to 45 days. How much extra cash is stuck?

About $250k. 500k × (15/30) = 250k.

Why does card billing help runway versus net-60 invoices?

Card billing keeps AR near zero. Net-60 parks two months of billings in AR at steady state.

Key takeaways

  • AR growth consumes cash. AP stretch is a short-term source.
  • DSO is a cash number. A 15-day rise at $500k/month is $250k.
  • Annual prepay funds growth; monthly and net-60 starve it.
  • Collections and payout timing belong in the financial model, not only in the billing tool.

Further learning

Next, how operators juggle ARR, billings and cash.

Cash flow and the three statements

Why profit ≠ cash, how the balance sheet and cash flow statement work, deferred revenue from annual prepay, and how the three statements link.

Deferred revenue

Cash collected for service not yet delivered. SaaS's cash superpower, and a trap if you spend it like profit.