The Trapped Cash Problem: Why Australian businesses are funding more and earning less in 2026

KPMG’s Australian Working Capital Trends report, published in March 2026, indicates that analysis of more than 500 Australian organisations found the national Cash Conversion Cycle increased from 58 days in FY21 to a five-year peak of 71 days in FY24, before easing to 62 days in FY25 — a sign of gradual normalisation, but continued pressure on liquidity.

That’s a national average. Beneath it sits a more structural shift: receivables have remained relatively stable, but inventory levels have increased as businesses moved away from just-in-time models towards holding more safety stock.

"The capital hasn’t disappeared — it has moved from the bank account to the warehouse," explains Rudy Messerschmidt, Octet's Director Working Capital Solutions (QLD & NT). "At the same time, the cost of funding that capital has risen."

With the RBA cash rate at 4.10% and industry estimates suggesting small business lending rates commonly sit in the 7–10% range depending on structure and risk, carrying working capital is no longer a background cost — it’s a board-level concern.

In April 2026, NAB’s Business Pulse reported that the share of businesses actively reviewing their cash flow and working capital increased from 27% to 35% in a single quarter — a clear signal that the issue is moving up the priority list.

To make this concrete, consider an Australian business turning over $5 million a year — roughly $13,700 in daily revenue.

The capital tied up in its trading cycle is broadly daily revenue multiplied by the cycle length. The cost of funding that capital depends on the rate the business pays.

The implication is simple: every additional 10 days in the cash conversion cycle ties up roughly $137,000 in capital — costing between $12,000 and $16,000 per year in funding costs, before the business grows at all.

The underlying problem isn’t new. What’s different in 2026 is convergence.

"Margin pressure from energy, freight and labour costs continues to compress profitability," says Rudy. "At the same time, regulatory and structural changes are increasing working capital requirements."

From 1 July 2026, Payday Super will require superannuation to be paid within seven business days of each payroll cycle rather than quarterly. This increases the frequency of cash outflows and creates a material working capital impact, varying significantly by payroll size.

At the same time, following recent legislative changes, General Interest Charges on ATO debt are no longer tax deductible, increasing the effective cost of carrying tax liabilities.

External cost pressures have also intensified. By March 2026, energy market volatility had driven a sharp increase in fuel and input costs, adding further strain to already stretched cash flow positions.

Together, these forces are creating a sharper working capital challenge for Australian SMEs.

The impact is not evenly distributed. Businesses with low inventory and fast payment cycles can operate with relatively little capital tied up. Others cannot.

Manufacturing businesses operate with structurally long working capital cycles. Capital is committed across multiple stages simultaneously — raw materials, work in progress, finished goods and receivables.

This means growth often increases cash pressure before it increases cash receipts.

Wholesalers avoid production complexity but face similar pressure: holding inventory while extending customer payment terms, often without equivalent supplier flexibility.

For a wholesaler turning $10 million annually with a 75-day cycle, more than $2 million can be tied up in working capital before growth is considered.

Labour hire provides one of the clearest illustrations of working capital mismatch.

Wages, super and on-costs are paid weekly, while customers — often large corporates or government — may take 30 to 60 days or more to settle invoices.

This creates a structural funding gap that must be continuously financed.

Transport and logistics operators combine high fuel and wage costs with extended customer payment terms.

Recent volatility in energy markets has increased input costs significantly, meaning more capital is required to operate at the same scale — before any growth is achieved.

"When working capital tightens, many businesses turn to their bank," notes Rudy. "The challenge is that traditional lending is not designed for dynamic trading cycles."

A standard overdraft or term loan is typically based on a snapshot of financials and secured against property or fixed assets.

This creates three structural mismatches:

• Speed: Credit approval can take weeks or months, while cash flow needs change week to week
• Security: Property-backed lending reduces flexibility and ties up key assets
• Scalability: Fixed facilities don’t grow with the business, creating constraints during expansion

KPMG’s Working Capital Advisory team notes that many organisations continue to operate with more cash tied up in working capital than necessary, often due to operational complexity and limited visibility.

The issue isn’t that the cash is missing — it’s that it’s trapped.

Working capital finance is structured around the trading cycle itself, rather than a static balance sheet position.

Invoice finance allows businesses to access funds tied up in unpaid invoices, typically advancing up to 80–85% of invoice value, often within 24 hours of approval.

This effectively converts receivables from a 30–60 day asset into near-immediate cash.

Key advantages:

• Funding scales with the receivables ledger
• Security is based on invoices, not property
• Approval and funding are faster than traditional lending

Trade finance supports the purchase of inventory, raw materials or goods in transit, with repayment aligned to eventual sale.

For businesses holding stock or importing goods, this allows inventory to be secured without depleting cash reserves.

In cases where supplier discounts are available for early payment, trade finance can also support margin improvement rather than simply adding cost.

Used together, these facilities address both sides of the working capital equation:

• Invoice finance reduces days sales outstanding (DSO)
• Trade finance extends effective days payable outstanding (DPO) without damaging supplier relationships

The result is a shorter net cash conversion cycle and less capital tied up in operations.

Octet’s working capital solutions are designed to operate independently or in combination:

OctetDebtor provides invoice finance, advancing up to 85% of outstanding invoice value, typically within 24 hours

OctetTrade funds up to 100% of supplier invoices, with flexible repayment terms of up to 120 days (including interest-free periods)

Term Loans of up to $5 million provide additional funding where a lump-sum injection is required alongside working capital facilities

For Australian businesses entering the second half of 2026, the question isn’t whether working capital is under pressure.

It’s whether that pressure will continue to be funded through traditional debt — or released from the trading cycle itself.

See how much capital is trapped in your trading cycle. Speak with an Octet working capital specialist to walk through your cash conversion cycle and show you what's recoverable with one of our smart business finance solutions.