Working capital management: A practical guide

Working capital equals Current assets minus Current liabilities. It is the oxygen your business breathes daily.

The Working Capital Cycle

Cash flows to Raw materials flows to Work in progress flows to Finished goods flows to Receivables flows back to Cash.

The faster this cycle turns, the less cash you need to fund operations.

Key Components

Cash Conversion Cycle (CCC)

CCC equals Days Sales Outstanding plus Days Inventory Outstanding minus Days Payables Outstanding.

Improving Working Capital

Receivables: Invoice immediately upon delivery, establish clear payment terms upfront, follow up before due date, and offer incentives for early payment.

Inventory: Implement reorder points, review slow movers monthly, negotiate consignment where possible, and improve demand forecasting.

Payables: Negotiate longer payment terms, batch payments on fixed schedules, take early payment discounts if APR exceeds cost of capital, and build strong supplier relationships.

Warning Signs

CCC increasing quarter over quarter, receivables growing faster than revenue, inventory turns declining, and increasing reliance on credit facilities.

Quick Wins

Invoice same day as delivery. Call (do not just email) for collections. Review receivables ageing weekly. Identify and clear slow-moving inventory. Consolidate payment runs.

This information is for educational purposes only and does not constitute professional advice.

When working capital starts tightening, businesses usually need sharper review through Fractional CFO Services, stronger ledgers via Accounting & Bookkeeping, and short-term visibility through the Runway Calculator.