itsual Working Capital
Overview
Working capital is the cash embedded in day-to-day operations. Improving it is often faster and cheaper than raising external capital.
When to Use
- Cash conversion cycle improvement
- AR aging and collections programs
- AP terms strategy
- Inventory optimization with operations
Core Practices
- Measure DSO, DPO, and DIO (or equivalent)
- Segment AR by risk and size for collections focus
- Negotiate payment terms intentionally, not accidentally
- Align inventory policy with demand uncertainty
- Watch for improvements that merely shift pain to partners unsustainably
Principles
- Sustainable working capital beats one-time squeezes
- Operations and finance must own this together
- Growth often worsens working capital before it helps
- Metrics without process change don’t free cash
Verification
- CCC components are measured consistently
- Initiatives have operational owners
- Cash impact is tracked, not only ratio optics