Here is a situation every installment retailer in Pakistan recognises. The ledger says the business is profitable. Sales are growing month on month. And yet there is never enough cash to restock properly, the supplier is being paid late, and the owner is quietly borrowing to keep the shelves full.
Nothing has gone wrong. This is simply what an installment book does: it converts your cash into other people's monthly payments, and it does so faster than the payments come back. The faster you grow, the deeper the hole gets before it starts to fill.
This article puts real numbers on that hole so you can plan for it instead of being surprised by it.
Why a profitable installment shop runs out of money
A cash retailer buys stock and converts it back to cash within days or weeks. The same rupee can be turned over many times a year.
An installment retailer buys stock and converts it back to cash over twelve months. That rupee turns over roughly once a year — and in the meantime, if you want to sell anything next month, you must find a second rupee. And a third the month after.
Profit does not solve this. Profit is real, but it arrives spread thinly across the tail of every plan, while the cost of goods leaves your account in full, today. The gap between those two timings is your working capital requirement.
The model: ten accounts a month
Take a shop with a simple, realistic pattern:
- Ten new installment accounts per month
- Purchase cost per unit: PKR 20,000 (so PKR 200,000 of stock bought every month)
- Installment price per unit: PKR 30,000
- Advance: 20% — PKR 6,000 per unit
- Tenure: 12 months, so each unit pays PKR 2,000 a month
In month one, you spend PKR 200,000 and collect PKR 60,000 of advances. In month two, you spend PKR 200,000 again, collect another PKR 60,000 in advances, plus PKR 20,000 of installments from the first cohort. And so on, each new month adding one more cohort to the collection stream.
| Month | Cash in | Cash out (stock) | Net for the month | Cumulative cash position |
|---|---|---|---|---|
| 1 | PKR 60,000 | PKR 200,000 | −PKR 140,000 | −PKR 140,000 |
| 2 | PKR 80,000 | PKR 200,000 | −PKR 120,000 | −PKR 260,000 |
| 3 | PKR 100,000 | PKR 200,000 | −PKR 100,000 | −PKR 360,000 |
| 4 | PKR 120,000 | PKR 200,000 | −PKR 80,000 | −PKR 440,000 |
| 5 | PKR 140,000 | PKR 200,000 | −PKR 60,000 | −PKR 500,000 |
| 6 | PKR 160,000 | PKR 200,000 | −PKR 40,000 | −PKR 540,000 |
| 7 | PKR 180,000 | PKR 200,000 | −PKR 20,000 | −PKR 560,000 |
| 8 | PKR 200,000 | PKR 200,000 | PKR 0 | −PKR 560,000 |
| 9 | PKR 220,000 | PKR 200,000 | +PKR 20,000 | −PKR 540,000 |
| 10 | PKR 240,000 | PKR 200,000 | +PKR 40,000 | −PKR 500,000 |
| 11 | PKR 260,000 | PKR 200,000 | +PKR 60,000 | −PKR 440,000 |
| 12 | PKR 280,000 | PKR 200,000 | +PKR 80,000 | −PKR 360,000 |
Every number in that table is from a business doing well. Nobody defaulted. Nobody paid late.
The three dials that change the number
Once you can see the shape, you can see which levers actually move it.
The advance is the biggest one. Run the identical shop at a 0% advance and the capital requirement rises from PKR 560,000 to PKR 900,000, with break-even pushed from month 8 to month 9. That is PKR 340,000 of extra capital, created entirely by a negotiation at the counter. This is the clearest argument for a written advance policy — see how to set your peshgi by category.
Tenure is the second. Stretching from 12 months to 18 or 24 lowers the monthly collection per account, which directly slows the refill rate. Long tenures are a capital decision disguised as a customer-service decision.
Growth rate is the third, and it is counter-intuitive. Going from ten accounts a month to twenty does not double your profit next month — it doubles your cash outflow next month while the extra collections arrive over the following year. In an installment business, accelerating growth makes your cash position worse before it makes it better. Many shops that collapse were not failing; they were expanding faster than their capital allowed.
What a default costs in capital terms
Defaults feel like the central risk, so it is worth sizing one honestly against the table above.
A customer in this model defaults in month 3. They paid PKR 6,000 advance plus three installments of PKR 2,000 — PKR 12,000 collected against your PKR 20,000 cost. Your unrecovered cost is PKR 8,000, before anything you get back by recovering and reselling the unit.
Set that against the PKR 560,000 the growing book ties up. You would need to lose roughly seventy accounts to default at month three to equal the capital that ordinary, healthy growth consumes.
That is not an argument for tolerating defaults. It is an argument for proportion: recovery discipline protects your margin, while advance policy and growth pacing protect your solvency. Shops usually die of the second problem while watching the first.
Cold stock: the capital you forgot you spent
There is one more drain that never shows up as a loss. Stock that has sat unsold for months is capital you have already spent, earning nothing, and quietly falling in resale value.
In the model above, PKR 200,000 leaves every month to buy goods. If even one unit in ten does not sell, you are adding PKR 20,000 a month to a pile that will never convert to an installment stream. Over a year that is PKR 240,000 — comparable to the entire capital gap created by dropping your advance to zero.
Treat slow-moving stock as a cash flow problem rather than an inventory problem. A unit discounted today and converted into an advance plus twelve collections is worth more than the same unit at full price in six months. Reviewing stock velocity monthly, alongside the ageing of your installment accounts, is the habit that keeps both halves of your capital working.
Three numbers to track every month
You do not need accounting software to run this model, but you do need these three figures in front of you:
- Cash collected this month — advances plus installments, actually received, not billed.
- Cash spent on stock this month.
- Your cumulative position since you started the book — the running total of the first two.
The third one is the number almost nobody tracks, and it is the only one that tells you whether you can afford to double your sales target next quarter. If your cumulative position is still deep in the negative, growth will have to be funded, not wished for.
This is also the practical difference between cash-basis and paper profit. A profit figure built from sales you have booked but not collected will tell you that you are doing well right up to the month you cannot pay your supplier. Measuring realised cash — what came through the door — keeps the two stories aligned.
Plan the hole before you fall into it
Before you raise your monthly sales target, run the table. Work out the trough, decide where that money comes from, and only then set the target. Growth in an installment business is not free, and the bill arrives first.
Markaz Flow tracks collections, stock cost and realised cash-basis profit in one place, so the cumulative position above is something you can read rather than reconstruct — see what the reporting covers or start free. You can also model individual plans on our free Installment Calculator, or read our guide to calculating installment markup and profit margins.