Overtrading

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-06

// THE SHORT ANSWER

Overtrading is a business growing faster than the working capital that funds it, so that rising sales consume cash faster than profits replace it. A business with US$10m of revenue and a cash conversion cycle of 73 days carries about US$2m of working capital; grow sales to US$15m on the same cycle and it needs about US$3m, an extra US$1m that a year's profit of US$600,000 cannot cover. A lender sees a profitable borrower that keeps reaching its limit, stretches suppliers and pays tax late, and reads it as a question of how the growth is funded: a larger facility, slower growth or more equity.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.