In a higher-cost-of-capital world, “cash” is a strategic input to resilience and growthCompanies that treat it as an enterprise performance system (not a finance clean-up exercise) consistently unlock liquidity and build a competitive edge.
Executive takeaways
- The prize is material and still under-captured. An analysis of 19,000+ listed companies estimates €1.56 trillion of “excess” working capital could be released for reinvestment.
- The problem is getting worse in key areas. Days Sales Outstanding (DSO) increased 6.6% over the last five years, tightening liquidity even as volatility rises.
- Best-in-class improvements can be fast. Working capital can represent several months of revenues, and highlights cases where companies generate large cash impacts within 60-90 days through targeted action.
- Working capital is not “just finance”, it is performance. Empirical research finds a shorter cash conversion cycle is associated with higher profitability, reinforcing that working capital discipline is linked to real operating outcomes.
- A pragmatic benchmark: Companies can often free up ~10–20% of invested working capital when they set a clear strategy and assign enterprise ownership.
Why working capital has moved back to the board agenda
Working capital management used to be framed as efficiency: important, but rarely existential. That changed for three reasons:
- Cash is more expensive than it used to be. With interest rates normalising “higher for longer” in major economies, the opportunity cost of cash trapped in receivables and inventory is painfully visible.
- Operating volatility has become structural. Supply disruptions, lead-time, and demand volatility push organisations into “just-in-case” inventory and looser credit controls, often without redesigning the operating model underneath.
- The traditional lever (stretching payables) is less effective and riskier. Suppliers face their own funding constraints, and aggressive term extensions can boomerang through price increases, service degradation, or reputational damage.
The implication is clear: companies need a modern approach that improves working capital without trading away service levels, supplier health, or growth.
Working capital as a strategic system
Most leadership teams track working capital, but fewer use it as a management system with clear ownership and decision rules.
Two metrics matter most:
1) Net Working Capital (NWC)
A simple operating definition:
NWC = Accounts Receivable + Inventory − Accounts Payable
You can also express it as NWC days, showing how much cash is tied up relative to sales.
2) Cash Conversion Cycle (CCC)
CCC can be defined as the time (in days) needed to convert inputs into cash, effectively the time to sell inventory, collect receivables and pay bills.
A common breakdown:
- DIO (Days Inventory Outstanding)
- DSO (Days Sales Outstanding)
- DPO (Days Payables Outstanding)
And: CCC = DIO + DSO − DPO
Why it matters: Academic evidence shows longer CCC is associated with lower profitability, reinforcing that working capital is tightly tied to operational effectiveness, not just finance policy.
The “size of prize” math executives actually use
The reason working capital is such a powerful growth lever is simple: small changes in “days” translate into large cash release.
A quick way to estimate impact:
- Reducing DSO by 5 days releases roughly:
(Annual Revenue / 365) × 5 - Reducing inventory by 5 days releases roughly:
(Annual COGS / 365) × 5
So a €500m revenue business with €350m COGS can easily unlock ~€6.8m from 5 days of DSO improvement and ~€4.8m from 5 days of inventory improvement, before touching payables.
That cash can fund:
- price and product investments,
- resilience (e.g., dual sourcing),
- capex for automation,
- or simply reduce reliance on external financing.
Excess working capital can be framed as a reinvestable “dividend” for transformation and business model reinvention.
Why working capital programs stall (and how to avoid it)
In many organisations, working capital efforts fade after an initial “cash sprint”. The failure modes are remarkably consistent:
Pitfall 1: Treating working capital as a finance initiative.
Working capital doesn’t appear on the income statement, so it is often underemphasised in performance management and incentives.
Fix: Put working capital outcomes into operating scorecards, not just treasury reporting.
Pitfall 2: Pushing payables without redesigning the ecosystem.
Extending terms can be a short-term release valve, but it’s increasingly zero-sum and can leak back through higher supplier prices or service impact.
Fix: Move from “term stretching” to supplier collaboration (e.g., supply chain finance where appropriate).
Pitfall 3: From no granular visibility to no root-cause control.
If leaders can’t see working capital by customer segment, SKU family, supplier category, or dispute type, they can’t manage it. Data granularity is a recurring gap.
Fix: Build a working capital “control tower” view that ties cash drivers to operational decisions.
Pitfall 4: Improvements plateau.
PwC explicitly warns of stagnation/plateau risk—and argues governance, analytics, and operating model changes are needed to sustain gains.
Fix: Institutionalise governance (cadence, ownership, escalation) and invest in skills and change.
A diagnostic that separates “good housekeeping” from competitive advantage
A consulting-grade working capital diagnostic typically answers four questions:
1) Where is cash trapped, and is it structural or temporary?
- AR concentration by customer
- inventory profile (slow movers, obsolescence risk, buffer stock vs true safety stock)
- AP term dispersion by supplier criticality
2) What is the gap to “clean-sheet” performance?
We recommend moving beyond incremental targets (“improve a few days”) toward clean-sheet targets built from demand variability, lead times, service levels, and contract design.
3) What is driving the gap?
Examples:
- DSO issue driven by billing accuracy and disputes (operations) vs credit policy (finance)
- inventory issue driven by forecast error (commercial planning) vs batch sizes (manufacturing)
4) What trade-offs are acceptable?
This is where strategy enters:
- Are we competing on availability and speed, or on capital efficiency?
- Do we have supplier power, or should we finance suppliers instead of squeezing them?
The highest-impact levers (what leading programs do differently)
Below are proven, enterprise-grade levers, prioritised by typical impact and sustainability.
Accounts receivable: reduce “terms vs behaviour” leakage.
What works
- Segment customers by value and risk; align terms, limits, and collections intensity
- Fix preventable disputes (pricing, POD, invoice accuracy) at the source
- Use digital workflows for billing and collections prioritisation
Watch-outs
- Over-tightening credit can kill growth in strategic segments; “one policy” rarely fits all.
Inventory: target variability, not averages.
What works
- Safety stock redesign based on real demand/lead-time variability (not gut feel)
- SKU rationalisation and service-tiering (not every product deserves the same promise)
- S&OP discipline: one forecast, one plan, one set of decisions
Watch-outs
- Too little inventory can disrupt operations, working capital gains must be bounded by service-level guardrails.
Accounts payable: move from “extend” to “optimise”.
What works
- Harmonise payment runs and eliminate early payments-by-default
- Create “should pay” controls: match policy, approvals, and vendor master governance
- Use supplier financing selectively; supplier financing is an advanced technique, particularly where the buyer’s cost of capital is lower than the supplier’s.
Watch-outs
- Aggressive term changes can rebound as higher prices or supplier instability if not designed collaboratively.
How to turn working capital into a durable advantage: a 30-60-90 blueprint
A common pattern in top-performing transformations:
Days 0-30: Establish truth and focus
- Define baseline (CCC, NWC days, AR ageing quality, inventory composition)
- Stand up governance: single owner, cross-functional working group, weekly cadence
- Identify “clean wins” (billing fixes, stop early payments, obsolete inventory plan)
Days 31-90: Execute targeted cash sprints with guardrails
- Collections sprint + dispute burn-down
- Inventory sprint: safety stock redesign + slow mover liquidation plan
- Procurement/payment sprint: payment discipline + terms compliance
Companies can deliver meaningful cash impact quickly (often within 60-90 days) when effort is focused and cross-functional.
Months 3-12: Institutionalise the system.
- Build analytics and dashboards (leading indicators, not lagging totals)
- Embed KPIs into performance management
- Refresh policies, training, and escalation routines to avoid backsliding
Where Qienda fits
Qienda’s Finance & Investments advisory is naturally aligned to this agenda because working capital sits inside a broader value-creation system:
- Working capital optimisation and supply chain finance to release cash without damaging supplier ecosystems
- Decision-grade modelling and scenario analysis to quantify trade-offs and protect service levels
- Board & stakeholder packs that translate operational levers into credible cash, resilience, and reinvestment narratives (the “so what” for governance)
