Working Capital Management: A Practical Playbook for High-Growth Businesses

Most finance leaders who land on this page already know what working capital is. They are here because they have a problem with it.

Cash is leaving the business faster than it is arriving. The bank balance tells one story; the P&L tells another. Suppliers are chasing. Customers are slow. Inventory is building and so, somehow, is the overdraft.

This post is about the operational levers. Not the definitions.

Start With the Cash Conversion Cycle

Before you touch anything, you need to know where the problem actually lives.

The cash conversion cycle (CCC) measures how long it takes to convert inputs into cash receipts. The formula is:

CCC = Debtor Days + Inventory Days − Creditor Days

A rising CCC is your early warning system. It tells you cash is getting trapped somewhere in the cycle before you feel the full impact on your balance sheet. When I inherit a finance function, I pull the CCC trend first. It usually tells me within a few minutes whether the problem is collections, stock, supplier terms, or some combination.

A business with a CCC of 45 days needs roughly 45 days of operating costs financed at all times. Push that to 70 days and, at scale, you are talking about a material cash requirement that is entirely invisible on the income statement.

The number itself matters less than the direction. If CCC has moved from 40 to 60 over two years and revenue has doubled, you have a structural problem, not a temporary blip. The structural problem needs structural solutions: changes to payment terms, buying practices, or financing facilities. Plugging it with overdraft repeatedly is expensive and unsustainable.

Different business models sit at very different points on the CCC spectrum. A SaaS business collecting subscriptions upfront can operate with a negative CCC, meaning customers fund the operation. An ecommerce business buying inventory 90 days before it ships can easily sit at 80 to 100 days. Neither is inherently right or wrong. What matters is whether the CCC matches the financing structure supporting it.

Debtor Days: What to Do When Customers Pay Late

Debtor days improvement is where most working capital conversations start, but the lever is blunter than people expect.

The obvious interventions are invoice promptly, send statements, chase systematically. A surprising number of businesses still invoice weekly in batches or wait until month end. That alone can add seven to ten days to average collection time with no operational justification. If your finance system can trigger an invoice the moment delivery is confirmed, that is where you start.

Beyond the basics, the decisions get harder.

Do you enforce credit terms? For most scale-ups, the answer is not a simple yes. Enforcing 30-day terms on a customer who represents 15% of your revenue is a negotiation, not an ultimatum. What you can do is segment your debtor book. Which customers pay consistently late? Which are genuinely slow because of their own internal processes versus which are simply deprioritising you?

I worked with a business where the top five late payers were all subsidiaries of the same group. The commercial team had been chasing each one individually for months. We approached the group treasury function directly, established a consolidated payment run, and reduced the average collection time on that group from 72 days to 38 days in a single quarter. It had nothing to do with credit control software or automated reminders. It required one conversation at the right level.

The other lever on debtors is early payment discounts. They are expensive when you do the annualised cost calculation, but for businesses with a genuine liquidity constraint, paying 1.5% to get cash 30 days early can make sense. Run the numbers before you dismiss it.

Invoice finance is relevant here if your debtor book is large. Invoice discounting allows you to draw down against the value of issued invoices, typically 80 to 85% of the face value, with the balance released when the customer pays. You retain control of credit control. The facility cost varies but is generally lower than an overdraft on a risk-adjusted basis, because the lender has recourse to the receivable, not just the business.

The downside is complexity and cost if your average invoice value is low or your debtor base is highly concentrated. A facility secured against ten customers, one of which represents 40% of the book, carries concentration risk that lenders will price in.

Creditor Days: Negotiating Terms Without Damaging Relationships

The mirror image of debtor days is creditor days. Extending the time you take to pay suppliers is the cheapest form of financing available to most businesses, and it is consistently under-used.

There is a common reluctance to ask. Finance teams worry about looking as though the business is struggling, or they assume suppliers will refuse. In my experience, most suppliers would rather extend terms than lose the account, particularly where you have a strong payment history and represent meaningful volume.

The conversation is easiest when you frame it as forward planning rather than crisis management. “We are planning our financing structure for the next twelve months and we want to understand what payment terms are available to us” lands very differently from “we need more time to pay.”

A business I worked with was paying its top ten suppliers on 30-day terms, all of which had been set at onboarding and never revisited. We approached each supplier with a request to move to 60 days. Seven agreed immediately. The combined impact on the cash position was the equivalent of approximately €340,000 of additional liquidity without any new facilities drawn down.

One caveat: do not extend terms with suppliers who are themselves small businesses operating on thin margins. That is bad practice and, increasingly, one regulators watch. The Prompt Payment Code exists for a reason. The negotiation works best with larger, well-capitalised suppliers who have the balance sheet to absorb it.

Supply chain finance, sometimes called reverse factoring, deserves attention if you are working with a significant supplier base. The buyer sets up a facility with a bank. Suppliers can opt in to get paid early at a small discount funded by the bank. You pay the bank on your normal extended terms. Suppliers get faster cash; you get longer terms without damaging the relationship. It works well at scale and in businesses with a high volume of supplier invoices.

Working Capital for Ecommerce: Stock Is the Dominant Driver

For ecommerce businesses, the CCC is almost entirely driven by inventory. Debtors barely exist if you are selling direct to consumer. Creditors matter, but the real variable is how long stock sits before it is sold and the cash is collected.

This means working capital management in ecommerce is fundamentally a buying and merchandising problem, not just a finance problem.

The levers are: minimum order quantities, lead times, sell-through rates, and returns. Finance cannot own all of these, but finance needs visibility across all of them to model the cash impact accurately.

The specific failure pattern I see most often in ecommerce scale-ups is inventory investment outpacing revenue growth. The buying team is chasing growth, placing larger orders to get better unit costs or to avoid stockouts during peak periods. The cash position deteriorates quarter on quarter even though the margin looks fine. By the time it shows up as a cash problem, you are already three to four months into the issue because inventory turns slowly.

The fix is not cutting orders indiscriminately. It is building a proper open-to-buy model that links inventory investment to cash availability, not just to sales forecasts. See The Inventory Problem in Ecommerce for how to approach this in practice, and Building an Ecommerce P&L for how to structure the financials to make stock dynamics visible at board level.

International expansion compounds the working capital challenge sharply. When you are holding stock in multiple territories, customs delays and longer lead times mean more cash is tied up for longer. The economics look very different from a single-warehouse domestic operation. Before committing to a new market, you need a clear picture of the working capital requirement, not just the revenue opportunity. What International Ecommerce Actually Costs covers this in detail.

Stock Financing: When to Use It and When to Walk Away

Stock financing, or inventory finance, allows you to use your stock as collateral to fund its purchase. The lender typically advances 50 to 70% of the stock value and takes security over it. You repay as inventory is sold.

It is useful in a specific set of circumstances: seasonal businesses with large pre-season purchases, businesses with strong sell-through rates and predictable cash conversion, and situations where the cost of the facility is lower than the cost of equity or dilution.

It is not a substitute for fixing the underlying working capital cycle. I have seen businesses use stock financing to paper over a buying problem. The facility covers the cash shortfall, but the underlying issue (too much slow-moving stock, poor sell-through on a product range) remains. When the facility comes up for renewal, the lender looks at the stock quality and either reprices or exits.

Before drawing down any stock financing facility, I want to see: a current stock report by age and category, a rolling sales forecast with a realistic sell-through assumption, and a clear plan for what happens to stock that does not move. If you cannot answer those questions, the facility will not solve the problem; it will delay it.

The cost of stock financing has increased materially since 2022. Annualised rates of 8 to 14% are common. That is not prohibitive for a business turning stock quickly, but it is material if inventory days are above 90.

Putting It Together: A Working Capital Management Plan

The most effective working capital improvement plans follow the same structure.

First, establish the baseline. Calculate CCC for the last eight quarters. Map where the movement has come from: debtors, inventory, or creditors.

Second, identify the highest-impact lever. In ecommerce, it is almost always inventory. In B2B services, it is usually debtors. In manufacturing or distribution, it tends to be a combination of stock and creditors.

Third, set a target. Not a vague ambition to “improve” debtor days, but a specific number: reduce average debtor days from 58 to 42 within six months. That gives the team something to measure against.

Fourth, build the cash impact into your forecast. A working capital improvement plan that is not modelled into your cash flow forecast is not a plan; it is a wish list. Cash Flow Forecasting That Works covers how to build a forecast that reflects what is actually happening in the business.

Fifth, review it monthly. Working capital is not a project you complete and move on from. The CCC should be a standing item in every management accounts pack, alongside the usual revenue and margin metrics.

One thing I push hard on with every client: do not run this as a finance project in isolation. The debtor days improvement conversation involves the commercial team. The creditor terms negotiation involves procurement or the founders. The inventory problem involves buying and merchandising. Finance owns the number and the analysis. The solution is always cross-functional.

The Bigger Picture

A business that manages its working capital well has options. It can fund its own growth, negotiate from a position of strength, and avoid the expensive emergency financing that follows a cash crisis.

A business that ignores working capital until it has a problem is constantly reactive. Every growth decision gets filtered through whether the cash is there to support it, rather than whether it is the right decision for the business.

If your cash conversion cycle is moving in the wrong direction, the time to act is now, not when the bank calls.

If you are working through a working capital problem and want an experienced finance leader in the room, find out how I work with scale-ups.