Two measuring systems
Why does profit look healthy while cash is still stuck?
Because profit and cash are two different measurements taken at two different moments. Profit records revenue when you have earned it and costs when you have incurred them. Cash records money only when it actually arrives or leaves. A profitable month is a statement about work done. A bank balance is a statement about who has paid you and what has already gone out.
The distance between the two is not an error and it is not a mystery. It is made of a small number of specific places where money is sitting: with customers who have not paid, in work you have delivered but never billed, in tax and payroll amounts you are holding but do not own, and in spending that left the bank without ever appearing in profit at all.
Two measuring systems, one business.
Neither measurement is more honest than the other. They answer different questions. Profit answers “is the work we do worth more than it costs us to do it?” Cash answers “can we pay what is due this week?” A business can be right on one and in real trouble on the other, and most cash surprises come from reading the answer to one question as though it settled the other.
The clearest way to see it is to take ordinary events and note the moment each system records them.
| The event | When profit records it | When cash records it |
|---|---|---|
| You finish the work | Now, where revenue is recognised as it is earned | Not yet |
| You send the invoice | Now, where revenue is recognised on invoicing | Not yet |
| The customer pays, sixty days later | Already recorded | Now |
| You buy a laptop or a vehicle | Gradually, as it is written down across its useful life | All of it, now |
| You repay a loan instalment | The interest part only | The whole instalment |
| You collect sales tax or VAT on a sale | Not at all — it was never your revenue | Now, into your account |
| You take a dividend or a drawing | Not at all — it is not a cost of trading | All of it, now |
| Payroll deductions withheld this month | Already, inside the payroll cost | Later, when they are paid over |
Exact treatment depends on the basis the books are kept on and on the rules applying where the business is registered. The direction of each row holds regardless.
Read down the right-hand column and the shape of the problem appears. Cash leaves in full and immediately for several things profit either spreads across years or never sees at all — and cash arrives late for the one thing profit counts first.
Money the business has earned and does not have.
The largest single component, in most service businesses, is simply invoices that have not been paid. Profit counted the revenue when it was earned. The bank will count it when somebody in the customer’s payables team decides it is your turn.
Three separate things widen that gap. They are worth pulling apart, because they have different causes and only one of them responds to chasing.
- Terms. Payment terms agreed at the start of a relationship and never revisited since. Thirty days written on an invoice, against a customer whose actual behaviour has always been sixty, is not a payment problem. It is a terms problem that has been quietly reclassified as one.
- Promises. A date somebody gave you on a call or in an email. A promise is more useful than an ageing bracket because it is specific and checkable — but only if it was written down and somebody looks on the day. Most are not, so a broken promise gets discovered by accident, weeks later.
- Disputes. An invoice that is unpaid because something about it is contested: a line the customer does not recognise, a missing purchase-order number, a delivery they say was incomplete. A disputed invoice is not late. It is blocked, and no amount of chasing moves it — it needs a decision from you.
Disputes are the most expensive of the three, because they sit inside the overdue figure and are indistinguishable from slow payment until somebody looks. A useful discipline is to split the receivables list three ways: not yet due, late, and blocked. Only the middle group is a chasing problem at all.
Receivables is a large enough subject to have its own treatment: how receivables and invoice follow-up actually get owned.
Work you have done and never billed.
This one is invisible in both systems, which is why it survives so long. Work delivered but never invoiced sits outside the receivables list, because nothing exists yet that could be overdue.
Whether profit knows about it depends on how the books are kept. Where revenue is recognised as work is delivered, the value appears as accrued income and the gap to cash is at least visible. Where the books are driven by invoices — common in owner-led service businesses — profit does not know either, and the work has effectively vanished from the accounts until somebody remembers to bill it.
- A project stage that completed but was never triggered for billing.
- Additional scope agreed verbally during delivery and never turned into a variation.
- Recurring work where the retainer was raised on time and the extra hours were not.
- A final invoice waiting on a sign-off that nobody has chased.
- Expenses recharged to a client, paid by the business, and never passed on.
Money in your account that was never yours.
Part of the balance you are looking at belongs to somebody else and is passing through. It inflates the account today and leaves on a date that has already been fixed by someone other than you.
- Sales tax or VAT you have collected. Where the business charges it, that amount was never revenue. It arrived alongside the customer’s payment and is due to be handed over.
- Payroll deductions withheld from pay. Income tax, social contributions and similar amounts are deducted at payroll and remitted afterwards. Between those two dates they sit in the account looking exactly like available cash.
- Employer contributions accrued now and paid later. The cost has already reduced profit; the payment has not yet reduced cash.
- Customer deposits and advance payments. Money received before the work is done is an obligation, not earnings. The cash is real; the profit is not there yet.
This category explains a specific and very common experience: an account balance that looks comfortable for three weeks of the month and alarming in the fourth. Nothing changed commercially. A fixed date simply arrived.
What is collected, what is withheld, and on what cycle it is remitted depend entirely on where the business is registered and how it is set up. The pattern holds everywhere; the specifics do not travel.
Money that left without ever being a cost.
The last group is the one owners find most counter-intuitive, because the money is unambiguously gone and the profit and loss account shows almost no trace of it.
- Buying an asset. Equipment, vehicles, fit-out, and in many cases capitalised software. Cash leaves in full on the day of purchase; profit is reduced gradually as the asset is written down across the years it is used. In the year you buy, the two figures diverge by close to the whole amount.
- Repaying borrowing. An instalment does two different things. The interest is a cost and reduces profit. The capital repayment reduces what you owe — it is not a cost at all, and profit never sees it. A business carrying substantial repayments can be genuinely profitable and structurally short of cash every single month.
- Owner drawings and dividends. A distribution of profit already earned, not a cost of earning it. Cash leaves; profit does not move.
- Paying down old creditors. Clearing a supplier balance built up in earlier months spends today’s cash against costs that were charged to profit long ago.
- Stock and prepaid costs. Less common in service businesses, but money spent in advance of the period it belongs to sits on the balance sheet until that period arrives.
Where is my cash actually sitting? Six places to look, in order.
The question is answerable, and it does not require an accountant to answer it the first time. Work through these in order and the distance between the profit figure and the bank balance will largely account for itself.
- 1 · The receivables list, split three ways. Not yet due, late, and blocked by a dispute. Note the largest three in each group. This is almost always the biggest number on the page.
- 2 · Work delivered and not yet invoiced. Ask whoever delivers the work, not whoever raises the invoices. The two lists are rarely the same list.
- 3 · What is due to go out on a fixed date. Tax collected, payroll deductions withheld, contributions accrued, deposits held against work not yet done.
- 4 · What you bought that became an asset. Anything capitalised in the period — equipment, vehicles, fit-out. Full cash out, a fraction of the cost in profit.
- 5 · Loan and finance repayments. Split each instalment into interest and capital. The capital half is cash gone that profit will never record.
- 6 · Drawings, dividends, and payments to old creditors. Money leaving against profit earned, or costs charged, in an earlier period.
Add those six together and compare the total against the difference you started with. If they broadly reconcile, you have your answer and nothing is wrong — the two systems were simply measuring different moments.
If a material gap remains, that is worth taking seriously on its own, because it usually means the profit figure itself is not yet reliable. That is a different problem with a different cause: an unfinished month-end.
Where At Par fits — and the limits.
At Par keeps both measurements visible at the same time. The books are reconciled and closed so the profit figure is reliable to begin with; receivables are tracked with what is due, what was promised and what is blocked; and reporting sets the position out so the cash question is answered before it becomes urgent — with a qualified accountant (ACCA) accountable for the work.
Related in scope: receivables and invoice follow-up, management accounts and reporting, bookkeeping and month-end close, and catch-up work where the books are too far behind for the profit figure to be trusted yet.
Which parts of this a provider should own, and which should stay with you, is set out separately: what an outsourced accounting provider should actually own.
Asked by owners looking at a good month and a thin bank balance.
Why is my business profitable but has no cash? +
Because profit and cash measure different things at different moments. Profit records revenue when it is earned and costs when they are incurred; cash records money only when it actually moves. The difference sits in a small number of places: invoices issued and not yet paid, work delivered and never invoiced, tax and payroll amounts held but owed to somebody else, and money that left the bank without ever being a cost — asset purchases, loan capital repayments, drawings and dividends.
What is the difference between profit and cash flow? +
Profit is a performance measure over a period: revenue earned less costs incurred, whether or not either has been settled in money. Cash flow is a movement record: what actually entered and left the bank in that period. A single transaction can appear in both at different times, in only one of them, or in neither. Because of that, a profit figure cannot tell you whether a payment can be made this week, and a bank balance cannot tell you whether the work is worth doing.
We made a profit, so where did the money go? +
Most often into three places a profit and loss account is not designed to show. Assets bought outright, where the cash leaves in full and the cost is spread across later years. Capital repayments on borrowing, which reduce a debt rather than create a cost, so profit never records them. And drawings or dividends, which distribute profit already earned rather than consume it. Add unpaid customer invoices to those three and the missing amount is normally accounted for.
Does buying equipment reduce profit? +
Usually not straight away. Where an item is treated as a long-term asset, the cash leaves the bank on the day it is bought while the cost is recognised gradually across the years the asset is used. In the year of purchase the bank feels the whole amount and profit feels a fraction of it. Whether a particular purchase is treated that way depends on its value, its expected life, and the rules applying where the business is registered.
Why does repaying a loan not show up in profit? +
Because a repayment instalment does two different things at once. The interest portion is the cost of borrowing and reduces profit. The capital portion reduces the amount owed — it settles a liability rather than creating an expense, so it never appears in profit at all. A business carrying significant borrowing can therefore be genuinely profitable and short of cash every month, with the difference sitting almost entirely in the capital half of each instalment.
Is sales tax or VAT that I have collected part of my profit? +
Where a business is registered to charge it, no. That amount arrives alongside the customer’s payment, sits in the bank account, and is due to be handed over on a fixed cycle. It was never revenue and it does not appear in profit. Treating it as available cash is one of the more common causes of a balance that looks comfortable for most of the month and uncomfortable on the payment date. What is charged, and when it is remitted, depends on the jurisdiction and the registration.
What is unbilled work and why does it matter to cash? +
Work that has been delivered but never turned into an invoice. It sits outside the receivables list, because nothing exists that could be overdue, and it often sits outside profit too where the books are driven by invoices rather than by delivery. That makes it the one gap nobody is looking at. Typical causes: a completed project stage never triggered for billing, extra scope agreed verbally, and expenses recharged to a client, paid by the business, and never passed on.
Can the profit figure itself be wrong rather than just early? +
Yes, and it is worth ruling out before looking anywhere else. Profit is unreliable if revenue was recognised on work not yet delivered, if costs belonging to the period are missing because bills arrived late and were posted into the following month, or if the accounts have not been reconciled and closed. A profit figure taken from an unfinished period is provisional. Where a cash gap cannot be explained by identifiable items, an unfinished close is the usual reason.
Will invoicing faster fix a cash problem? +
Sometimes, and not always. Where invoices are being raised days or weeks after the work is done, issuing them promptly moves the whole collection cycle forward and is clearly worth doing. Where the delay sits inside the customer’s own payment process, in terms that were agreed too generously, or in disputes blocking specific invoices, invoicing sooner changes nothing at all. Work out which of the three applies first — and treat any promise that a customer will pay faster with suspicion.
Send us one month. We’ll show you where the cash is sitting.
Bring a recent month — the profit figure, the bank balance, and the receivables list. We will work through the six places above and account for the difference between them.
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Reviewed by an ACCA on the At Par team · Last updated 29 July 2026 · Accounting treatment is described here in general terms; specifics depend on the basis your books are kept on and where the business is registered. See what we actually do.