Rapid business growth sounds like an ideal problem to have, but it creates financial pressures that catch many coatings businesses off guard. As your project pipeline fills, you're purchasing more materials, hiring additional labor, and covering expenses weeks or months before clients pay invoices. This gap between expenditure and payment—working capital—becomes a bottleneck that can actually prevent you from accepting profitable work. Understanding cash flow dynamics during growth periods isn't just about survival; it's about positioning your business to capitalize on opportunities without financial strain.
The coatings industry faces unique cash flow challenges that amplify during growth. Material costs represent a significant upfront investment, skilled labor commands premium wages, and commercial clients often operate on 30, 60, or even 90-day payment terms. Meanwhile, your suppliers expect payment in 15-30 days, and payroll happens weekly or biweekly regardless of when clients pay. This timing mismatch means that taking on more projects—even highly profitable ones—can actually drain your cash reserves faster than they're replenished.
Recognizing the Warning Signs Before Cash Flow Becomes Critical
Cash flow problems rarely appear overnight. Smart business owners watch for early indicators that growth is outpacing financial capacity. When you're regularly choosing which bills to pay based on available cash rather than due dates, that's a warning sign. If you're hesitating to bid on projects because you're unsure whether you can cover material costs, your cash flow has become a limiting factor. Relying increasingly on credit cards or personal funds to bridge gaps indicates that business cash isn't flowing properly.
Another red flag is inconsistent attention to accounts receivable. When growth accelerates, it's tempting to focus entirely on production and let invoicing or collections slide. This creates a compounding problem where completed work sits unbilled, or invoices age without follow-up while you're simultaneously spending on new projects. The result is a growing pile of money owed to you that isn't available to cover current obligations, creating an artificial cash shortage despite strong sales.
Structuring Payment Terms That Protect Your Cash Position
Payment terms directly impact cash flow, yet many coatings businesses simply accept whatever terms clients propose without negotiation. For large projects, requesting deposits or progress payments tied to milestones dramatically improves cash flow by aligning income with expenses. A 30% deposit covers initial material purchases, progress payments at defined completion points provide ongoing cash, and final payment upon completion closes out the project without leaving substantial funds in accounts receivable.
Some clients resist deposits or progress billing, particularly in competitive bidding situations. In these cases, consider whether the project makes financial sense given your cash position. A large project with 90-day payment terms might be less valuable to your business than smaller projects with deposits and shorter payment cycles, even if the larger project appears more profitable on paper. Strategic selectivity about which projects you pursue based on payment terms is a legitimate growth management tool.
Accelerating Collections Without Damaging Client Relationships
Getting paid faster doesn't require aggressive collection tactics that alienate clients. Simple process improvements often accelerate payment significantly. Invoice promptly upon completion—delays in billing lead directly to delays in payment. Include clear payment terms and due dates on every invoice, and send invoices through multiple channels (email, mail, and potentially through client procurement portals) to ensure they're received and processed.
Follow up systematically on outstanding invoices. A friendly reminder call or email when invoices approach their due date often prompts payment and demonstrates attention to your accounts receivable. If payment doesn't arrive by the due date, contact the client immediately to understand what's causing the delay. Many late payments result from simple administrative issues like missing documentation or invoices stuck in approval queues—problems that quick communication can resolve. Treating collections as an ongoing process rather than an emergency measure when cash gets tight prevents small delays from becoming serious problems.
Strategic Material Purchasing: Balancing Inventory and Cash
Material costs represent one of the largest cash outlays in coatings projects, and how you purchase can significantly impact cash flow. Buying materials project-by-project keeps inventory investment minimal but often means paying higher per-unit costs and risking delays if products aren't in stock. Buying in volume reduces unit costs and ensures availability but ties up cash in inventory that might sit for weeks or months before use.
The right balance depends on your project volume and predictability. If you regularly use certain products across multiple projects, maintaining reasonable inventory of those items improves project efficiency and locks in bulk pricing. For specialty products used infrequently, project-specific purchasing makes more sense despite potentially higher costs. Some distributors offer consignment arrangements where you pay for products as you use them rather than upon delivery—this essentially shifts inventory carrying costs to the supplier and can significantly improve cash flow for growing businesses.
Leveraging Supplier Relationships for Better Payment Terms
Your relationships with material suppliers can become valuable cash flow tools during growth periods. Suppliers who know your business, trust your payment history, and value your growing volume are often willing to extend more favorable terms than what new customers receive. Requesting extended payment terms—even an additional 15 days—creates breathing room between when you purchase materials and when client payments arrive.
Some suppliers offer early payment discounts (2/10 net 30, for example) that provide significant savings if you can pay quickly. However, only take these discounts when your cash position genuinely allows it. Paying early to save 2% when you then can't cover payroll or other obligations costs far more than the discount saves. During rapid growth when cash is tight, it's often smarter to use full payment terms even if that means forgoing discounts.
Building a Cash Reserve Before You Need It
The best time to build cash reserves is before growth accelerates, but many businesses operate without meaningful reserves until cash flow problems force the issue. Systematically setting aside a percentage of profits during normal periods creates a buffer that smooths cash flow fluctuations during growth. Even a reserve covering one month of operating expenses provides tremendous flexibility in managing the timing gap between project expenses and client payments.
If you're already in a rapid growth phase without reserves, consider whether slowing growth slightly to build cash reserves makes strategic sense. Accepting fewer new projects for a quarter while collecting on work in progress and banking those proceeds might feel counterproductive, but it positions your business to handle subsequent growth more sustainably. Alternatively, owners sometimes inject personal capital or take on a line of credit specifically to build working capital reserves before expanding further.
Using Credit Lines Strategically During Growth
A business line of credit serves as short-term working capital for exactly the kind of timing gaps that growth creates. Drawing on a credit line to cover materials or payroll while waiting for client payments, then paying down the line when payments arrive, is a legitimate use that many successful coatings businesses employ during growth periods. The key is using credit strategically for true working capital needs rather than to cover losses or fund expenses that should be covered by operations.
Shop for credit before you need it. Lenders are more willing to extend credit when your business doesn't appear desperate, and you'll negotiate better terms when you have time to compare options. Understand the costs—interest rates and any fees—and factor these into your project pricing and cash flow planning. Used properly, credit can be the bridge that lets you accept growth opportunities that would otherwise strain your cash position beyond feasible limits.
Adjusting Project Mix to Balance Cash Flow and Profitability
Not all profitable projects impact cash flow equally. A smaller residential project with a 50% deposit and payment upon completion might generate less total profit than a large commercial project with 90-day terms, but it provides faster cash turnover that supports overall cash flow. During rapid growth, strategically balancing project mix to include some quick-turn, positive-cash-flow projects alongside larger commercial work creates a more stable financial foundation.
This doesn't mean avoiding large projects or long-term clients. It means consciously managing your project portfolio to ensure adequate cash flow supports your growth rate. If your pipeline is heavy with commercial projects on extended terms, actively pursuing some projects with better payment terms provides the cash velocity that keeps your business liquid while completing the larger work.
The Bottom Line: Cash Flow Management Enables Sustainable Growth
Strong sales and healthy profit margins don't guarantee business success if cash flow can't support growth. The coatings businesses that scale successfully without financial strain are those that treat cash flow management as a core competency rather than an afterthought. By structuring payment terms strategically, managing collections proactively, optimizing material purchasing and supplier relationships, maintaining reserves, and using credit intelligently, you create the financial foundation that turns growth opportunities into sustainable business expansion rather than financial crises.
