Working capital is the cash your business has lent to its own operations — sitting in unpaid invoices, in stock on shelves, and offset by what you have not yet paid suppliers. Releasing some of it is the cheapest funding available to most companies: no interest, no covenants, no arrangement fee. It is also the funding that businesses reach for last, after exhausting overdrafts that cost 10% a year.
The measure that frames everything
The cash conversion cycle is debtor days plus stock days less creditor days — the number of days between paying for something and being paid for it. A business with 55 debtor days, 40 stock days and 30 creditor days funds itself for 65 days. Be careful with the arithmetic that follows, because this is where most boardroom estimates go wrong. On £10 million of annual credit sales, one debtor day is roughly £27,000 — turnover divided by 365 — and that figure is right for receivables only. Stock days are measured against cost of sales and creditor days against purchases, both of which are smaller numbers than turnover, so a day of each releases less. Value the three movements separately and add the cash they produce; multiplying the whole cycle by a day of sales overstates the prize, often by a wide margin.
That is the arithmetic worth putting in front of a board, because it converts a bookkeeping topic into a funding decision. And unlike a cost reduction programme, the released cash does not come out of anyone's budget.
Receivables: the largest and most controllable
Most of the opportunity sits here, and most of it is process rather than negotiation. Invoice the day the work completes rather than at month end — on 30-day terms, invoicing on the 30th instead of the 1st costs a month. Get the invoice right first time. A query does not legally reset the contractual payment clock — the agreed terms still govern, and what a customer may withhold for a genuine dispute is usually narrower than they claim — but in practice a queried invoice goes to the back of the queue, and disputes are among the most common reasons good invoices are paid late. Agree terms explicitly with new customers rather than letting their purchase ledger choose. And follow up before the due date, which is the step that changes behaviour rather than merely recording failure.
Beyond process, three levers: deposits or staged payments on long projects, direct debit for recurring revenue, and early settlement discounts where the implied annual rate is below your cost of borrowing. The mechanics are set out in our guide to credit control procedures, and the reporting in our guide to trade debtors.
Inventory: the slowest to fix and the most permanent
Stock is cash that has already been spent. The analysis that works is an ABC segmentation — a small proportion of lines usually drives most of the value — combined with an honest ageing. Every business with a warehouse has slow-moving and obsolete stock it is reluctant to write off, and carrying it costs storage, insurance, capital and eventually a larger write-down.
The structural improvements are ordering more frequently in smaller quantities, reducing lead times so less safety stock is needed, consignment arrangements where suppliers will accept them, and simply discontinuing lines that turn twice a year. The constraint is service level: cutting stock without addressing lead time produces stockouts, which cost more than the cash released.
Payables: the lever to use carefully
Paying suppliers later releases cash immediately, and it is the most abused of the three levers. Paying beyond agreed terms gives suppliers a statutory right to interest at 8% over base plus fixed recovery costs, damages relationships, and — where credit insurers notice — causes suppliers to shorten terms or demand payment up front, which reverses the gain with interest.
The legitimate version is different: negotiate longer terms openly in exchange for volume or commitment; align payment runs so invoices are not paid early by accident, which happens constantly where there is no payment run discipline; and use supply chain finance where the business's own credit rating lets suppliers be paid early at a rate better than they could obtain themselves. That last one improves both sides, which is why it exists.
Running a programme rather than a push
Working capital improvements decay. A collections push releases cash for a quarter and the ledger drifts back unless something structural changed. What makes it stick:
- Owners. Debtor days belong to sales as much as finance, stock days belong to operations. A finance-only initiative fixes nothing upstream;
- Measurement in the monthly pack — the three components and the cycle, as a trend, alongside profit;
- Targets in the plan, so the released cash is budgeted rather than incidental;
- A forecast that shows it. The 13-week cash flow is where improvements become visible quickly enough to sustain attention.
One caution: growth consumes working capital. A business expanding at 30% a year needs more cash in the cycle each month even if every ratio improves — which is why profitable, fast-growing companies run out of money, and why the optimisation work matters most precisely when the trading is going well.
Acumon works on this alongside management accounts and financial modelling, with business health checks where the cycle has drifted and nobody has quantified it. Ten days of cycle is real money, and it is already yours.