Purpose - We investigate the impact of Absorptive Capacity (ACAP) for SMEs embedded in Collaborative Networks (CNs) on innovation performance, considering the network stages and the influence of partnership quality. Design/methodology/approach - We use a mixed methodology consisting of a qualitative than a quantitative phase. The first stage relies on an in-depth literature review and 22 interviews with 17 manufacturing SMEs having operated in collaborative innovation projects to characterize the potential and realized ACAP of such SMEs in the creation and operation stages of a CN. The second phase aims at testing four hypotheses through a hierarchical regression based on 74 responses to a survey involving SMEs with prior CN experience. Findings - Our results explain how an SME’s ACAP in the creation stage affects its ACAP in the operation stage. We also demonstrate that this latter capability contributes positively to innovation performance in the CN. Furthermore, partnership quality was found to have counterproductive effects regarding potential ACAP. Practical implications - We provide manufacturing SMEs with guidance to deploy ACAP throughout their collaborative experience and overcome the potential pitfalls of good partnership quality. Originality/value - We operationalize ACAP of manufacturing SMEs to contribute to mutual innovation goals in CNs and uncover its properties. We explain how this dynamic capability accumulates over the CN stages to result in higher innovation performance and show how it helps in striking a balance between the “dark” and “virtuous” sides of partnership quality.