Essence Premium Catering Business Plan — Working Capital

Why contract feeding consumes cash before it produces it, the debtor cycle on corporate and public clients, and how it is funded.

Working Capital

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9.1 Collection discipline
9.2 The cash conversion cycle

Catering pays weekly and gets paid monthly, or later. The debtor book reaches R3.05 million by Year 5.

Figure 11. The debtor book and who is financing whom.

	Year 1	Year 2	Year 3	Year 4	Year 5
Private sector debtor days	38	36	34	33	32
Public sector debtor days	—	—	74	71	68
Trade debtors, R’000	369	819	1 559	2 308	3 052
Stock, R’000	46	108	205	306	412
Trade creditors, R’000	(118)	(276)	(524)	(785)	(1 057)
Net working capital, R’000	297	651	1 240	1 829	2 407
Movement in the year, R’000	(297)	(354)	(589)	(589)	(578)

Public sector clients are modelled at 68 days against a 30-day legal requirement. Reported experience across sectors puts government payment cycles at 60 to 90 days, so 68 is a reasonable central assumption and not a pessimistic one. That is the hidden cost of government work: not just the thin margin, but the length of time the caterer finances it. A contract-backed working capital facility is drawn from Year 2 for exactly this reason.

The working capital facility is a structural requirement, not a contingency

Net working capital absorbs R2.41 million of cash across the five years and R577 000 in Year 5 alone — more than a quarter of that year’s EBITDA. It is not a timing problem that resolves; it grows every year the business grows, because a larger contract book means a larger debtor book. A contract-backed facility advanced against signed contracts and certified invoices is the correct instrument, because it is underwritten on the client’s creditworthiness rather than the caterer’s balance sheet, and it scales with the debtor book that creates the need. Three tranches totalling R3.80 million are drawn across Years 2 to 4, and they revolve against invoices rather than amortising. A caterer who tries to fund this from a term loan will find the repayment schedule and the collection cycle work against each other.

9.1 Collection discipline

Invoice on the day of the month contractually specified, with the signed meal count record attached. A disputed count is the most common reason a catering invoice sits unpaid.
Obtain a signed delivery or meal count record at every site, every day. It is the document the facility advances against and the document that settles a dispute.
Reconcile meal counts weekly with the site contact rather than monthly with accounts payable.
Track debtor days separately for public and private clients; a blended figure hides the problem.
Escalate at 45 days for private clients and 75 for public, in writing, before the relationship is at stake.
Never fund a new contract’s mobilisation from the collection of an existing one; that is how a growing caterer runs out of money while trading profitably.

9.2 The cash conversion cycle

Element	Days	Effect on cash
Food purchased and paid	Weekly to 30 days	Cash out before the meal is served in most cases
Wages paid	Weekly	Cash out in the week the meal is served
Meal served and counted	Day zero	The signed count record is created here
Invoice issued	Month end	Up to 30 days after the earliest meal in the period
Private client pays	32 days from invoice	Roughly 47 days from the average meal served
Public client pays	68 days from invoice	Roughly 83 days from the average meal served
Net cycle, blended	Approximately 55 days	Funded by the caterer or by the facility

The blended cycle of roughly 55 days on R31.82 million of Year 5 revenue is what produces a R3.05 million debtor book. It is not a collections failure — 32 days from a private client is good performance and 68 from a public one is at the better end of the reported 60-to-90-day range. It is the structure of the industry, and it has to be funded rather than solved.

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