A company goes bankrupt when it can no longer pay its bills, not when it makes a loss. Profit arises when you invoice, money only when the customer pays. If there are months in between, and you pay salaries, suppliers and VAT in the meantime, the bank account can run dry while profit grows. Research shows that the time your money is tied up in stock and unpaid invoices is linked to how profitable a company is.
In short
- Bankruptcy is about paying, not about profit. The law speaks of a company that has stopped paying.
- In research among 1,009 Belgian and 8,872 Spanish companies, companies with fewer days of unpaid invoices and stock were more profitable.
- Too tight is not good either: there is an optimum. And a customer that goes bankrupt can drag you down, especially if you give it a lot of credit.
In this article
- How can a company make a profit and still go bankrupt?
- How long is your money tied up in your business?
- Does a shorter cash conversion cycle make a company more profitable?
- Can your working capital also be too tight?
- Can a customer that goes bankrupt drag your company down?
- How many companies go bankrupt in the Netherlands?
- Which figures show in time that money is getting tight?
How can a company make a profit and still go bankrupt?
Because profit and money do not arrive at the same moment. You record profit when you send an invoice. Money only comes when the customer pays. A company goes bankrupt when it has no money left to pay, even if it makes a profit on paper.
That is also what the law says. The court declares a company bankrupt when it has stopped paying (Dutch Bankruptcy Act, article 1). Whether the company makes a profit plays no part in this. The only question is whether there is enough money for the bills that are due.
An example makes the difference visible. You deliver a €50,000 order in March and agree a payment term of 60 days. The revenue and the profit are in your books in March. The money only arrives in May. In April you still pay your staff, your suppliers and the rent.
VAT works the same way. As a rule, you owe the VAT at the moment you issue the invoice, not when the customer pays (Dutch VAT Act 1968, article 13). Only businesses that do not usually supply to other businesses can pay VAT once the money is in (article 26). So if you supply to businesses, you pay VAT on money you do not have yet.
How long is your money tied up in your business?
You measure this with the cash conversion cycle: the number of days between the moment you pay your supplier and the moment your customer pays you. The longer that period, the more money is tied up and the more you have to pre-finance yourself.
The cash conversion cycle has three parts. Inventory days are the number of days goods spend on the shelf on average. Receivable days are the number of days customers take to pay on average. Payable days are the number of days you take to pay yourself. The cash conversion cycle is inventory days plus receivable days minus payable days (Deloof, 2003).
You calculate each part with figures from your own books. Receivable days, for example, are the amount of unpaid customer invoices, divided by annual revenue, times 365. You calculate inventory days and payable days in the same way, using stock and purchases. It is not about a single measurement, but about how the figure develops month by month.
Does a shorter cash conversion cycle make a company more profitable?
Research points that way. Companies with fewer days of unpaid invoices and stock are more profitable on average. This was found among large Belgian companies and among Spanish SMEs.
Deloof studied 1,009 large Belgian companies outside the financial sector, over the years 1992 to 1996. Companies with fewer receivable days and fewer inventory days were more profitable. Less profitable companies, on the other hand, waited longer to pay their own bills (Deloof, 2003).
García-Teruel and Martínez-Solano looked at 8,872 Spanish SMEs over the years 1996 to 2002. There too, a shorter cash conversion cycle went together with higher profitability. The researchers tested whether the link ran the other way, meaning that profitable companies simply get paid faster. The result held up (García-Teruel & Martínez-Solano, 2007).
This remains research into averages across large groups of companies, in Belgium and Spain and in a different period. It does not say that every company makes more profit if it halves its payment term. It does say that money tied up in invoices and stock is not free. You have to finance it, with your own money or with a loan.
Can your working capital also be too tight?
Yes. Working capital is the money tied up in stock and unpaid invoices, minus what you still have to pay yourself. Too much working capital costs money, but too little costs sales. There is a point where it is optimal.
Baños-Caballero, García-Teruel and Martínez-Solano found an inverted U shape among British companies. Up to a certain level, more working capital goes with better performance, and above it with worse performance. For companies that find it harder to obtain finance, that optimal point is lower (Baños-Caballero, García-Teruel & Martínez-Solano, 2014).
In practice this means: stock that is too small costs you deliveries. Payment terms that are stricter than usual in your sector cost you customers. So the aim is not zero, but as short as your customers and your market allow. For a small company with little room at the bank, that limit is tighter than for a large company.
Can a customer that goes bankrupt drag your company down?
Yes. If a customer goes bankrupt, you often lose most of your unpaid invoices. The more credit you give, the greater that risk. Swedish research shows that such a loss increases the chance that the supplier itself also goes bankrupt.
Jacobson and Von Schedvin studied how bankruptcies spread through trade credit. Trade credit is the deferred payment you give a customer. Suppliers that gave more credit were more often faced with a bankrupt customer and also lost more. That loss substantially increased their own bankruptcy risk (Jacobson & von Schedvin, 2015).
The effect was smaller for suppliers with little debt, plenty of cash and high profitability. It was larger during economic downturns (Jacobson & von Schedvin, 2015). So profit helps, but a cash buffer helps just as much. A company that gives a lot of credit to a few large customers runs the greatest risk.
How many companies go bankrupt in the Netherlands?
In 2025, 3,636 companies were declared bankrupt in the Netherlands, 15% fewer than in 2024. The bankruptcy rate, the number of bankruptcies per 100,000 companies, averaged 8.2 (CBS, 2026). These are provisional figures.
In 2026 the number is rising again. In September 2026, 320 companies went bankrupt, 16% more than a year earlier. The bankruptcy rate was 8.5, compared with 7.5 in September 2025 (CBS, 2026). Transport and storage had the highest bankruptcy rate of all sectors that month.
The CBS figures do not say whether a bankrupt company was profitable shortly before. How many of these companies made a profit on paper is therefore not known. The research on working capital and trade credit does show why money, and not profit, determines the moment of bankruptcy.
Which figures show in time that money is getting tight?
Do not only look at profit, but also at the cash conversion cycle and the bank balance you expect. A few figures per month say more than annual accounts that are ready months after the year has ended. Three figures give the fastest signal.
Receivable days
If they rise, customers are paying more slowly or you are giving longer terms than you think.
Inventory days
If they rise, more money is sitting on the shelf than your sales require.
Your largest unpaid items
How much is outstanding with your three largest customers? If one of them goes bankrupt, can you absorb that loss?
Put a simple forecast of the bank balance next to it, for the coming three months. Include VAT, payroll taxes and loan repayments on the day they have to be paid. That way you see a shortfall coming while there is still time to talk to the bank, a customer or a supplier.
Sources
- Faillissementswet (Dutch Bankruptcy Act), article 1. Consulted on wetten.overheid.nl, October 2026. wetten.overheid.nl
- Wet op de omzetbelasting 1968 (Dutch VAT Act), articles 13 and 26. Consulted on wetten.overheid.nl, October 2026. wetten.overheid.nl
- Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance & Accounting, 30(3-4), 573-588. doi.org
- García-Teruel, P.J. & Martínez-Solano, P. (2007). Effects of working capital management on SME profitability. International Journal of Managerial Finance, 3(2), 164-177. doi.org
- Baños-Caballero, S., García-Teruel, P.J. & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332-338. doi.org
- Jacobson, T. & von Schedvin, E. (2015). Trade credit and the propagation of corporate failure: an empirical analysis. Econometrica, 83(4), 1315-1371. doi.org
- CBS, In December 18 percent fewer bankruptcies than a year earlier, 12 January 2026. cbs.nl
- CBS, In September 16 percent more bankruptcies than a year earlier, 12 October 2026. cbs.nl