Working Capital Optimization Strategies
Free cash trapped in your working capital cycle — reducing cycle time by 10 days can release millions in cash
- Working Capital Optimization Strategies
- Reducing Days Sales Outstanding
- Extending Days Payable Outstanding Ethically
Working Capital Optimization Strategies#
Working capital cycle = DIO (Days Inventory Outstanding) + DSO (Days Sales Outstanding) - DPO (Days Payable Outstanding). Reduce the cycle to free cash. Average SME: DIO 45 + DSO 52 - DPO 38 = 59 days of cash tied up. Target: 30-40 days. On $50M revenue, reducing the cycle from 59 to 40 days frees $2.6M in cash.
Reducing Days Sales Outstanding#
DSO reduction tactics: invoice on delivery (not end of month), offer early payment discounts (2/10 net 30 saves you factoring costs), automate collections (dunning emails at day 1, 15, 30, 45), escalate systematically (call at day 35, collection agency at day 60). Each day of DSO reduction on $50M revenue frees $137K in cash. A 10-day improvement = $1.37M.
Don't just pay late — negotiate longer terms upfront.
Extending Days Payable Outstanding Ethically#
Don't just pay late — negotiate longer terms upfront. Move from 30-day to 60-day terms with key suppliers (offer volume commitment in exchange). Use supply chain finance to pay suppliers early while extending your DPO. Avoid: unilaterally extending payment beyond agreed terms — it damages relationships and your credit reputation.
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- Free cash trapped in your working capital cycle — reducing cycle time by 10 days can release millions in cash
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What is the business impact of working capital optimization strategies?
Free cash trapped in your working capital cycle — reducing cycle time by 10 days can release millions in cash
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