From Treasury Masterminds
For many organisations, working capital remains one of the most accessible sources of funding. Improving working capital can release cash, reduce financing needs and strengthen financial resilience without requiring additional external funding.
While treasury often plays a central role in monitoring liquidity and funding requirements, improving working capital is rarely something treasury can achieve alone. Success depends on collaboration across multiple functions, each influencing different parts of the cash conversion cycle.
What Is Working Capital?
Working capital is typically defined as:
Current Assets – Current Liabilities
In practice, most working capital discussions focus on three key components:
- Accounts Receivable (AR)
- Inventory
- Accounts Payable (AP)
Together, these determine how quickly cash moves through the organisation.
The cash conversion cycle measures the time between paying suppliers and collecting cash from customers. Reducing this cycle can significantly improve liquidity and reduce reliance on external financing.
Treasury’s Role in Working Capital
Treasury is often responsible for managing liquidity, forecasting cash flows and securing funding. Because of this, treasury has a unique view across the entire organisation.
Treasury can:
- Monitor working capital metrics and trends
- Quantify the liquidity impact of operational decisions
- Support forecasting and scenario analysis
- Evaluate financing solutions
- Coordinate initiatives across departments
- Report working capital performance to management
However, treasury does not directly control customer payment behaviour, inventory levels or supplier terms. Those responsibilities sit elsewhere in the organisation.
This is why collaboration becomes critical.
Accounts Receivable: Working with Sales and Credit Management
Reducing Days Sales Outstanding (DSO) is one of the most common working capital objectives.
Several departments influence customer collections:
Sales
Sales teams often focus on revenue growth and customer relationships. Payment terms may become part of commercial negotiations.
Treasury can support discussions by highlighting the cash impact of extended payment terms and helping establish clear policies.
Credit Management
Credit teams manage customer risk and collection activities.
Potential improvement initiatives include:
- Stricter credit assessments
- Automated collection processes
- Early payment incentives
- Electronic invoicing
- Improved dispute resolution processes
Even small reductions in DSO can release substantial amounts of cash for large organisations.
Inventory: Working with Operations and Supply Chain
Inventory often represents the largest working capital component for manufacturers, retailers and distributors.
Inventory decisions are typically made by:
- Supply chain teams
- Procurement
- Operations
- Production planning
The challenge is balancing inventory availability with cash efficiency.
Potential initiatives include:
- Demand forecasting improvements
- Inventory optimisation programmes
- Supplier integration
- Better production planning
- SKU rationalisation
- Enhanced data visibility
Treasury can help quantify the cost of holding inventory and support business cases for optimisation projects.
Accounts Payable: Working with Procurement and Accounts Payable
Extending payment terms can improve working capital by increasing Days Payable Outstanding (DPO).
However, this must be approached carefully.
Longer payment terms may:
- Impact supplier relationships
- Increase supplier financing costs
- Create supply chain risks
Collaboration between treasury, procurement and accounts payable is therefore essential.
Potential initiatives include:
- Standardising payment terms
- Improving invoice processing efficiency
- Leveraging payment scheduling
- Negotiating terms during contract renewals
- Evaluating supplier financing programmes
The objective should be creating sustainable improvements rather than simply delaying payments.
Technology as an Enabler
Many working capital improvements rely on better visibility and data quality.
Technology solutions can include:
- ERP enhancements
- Treasury Management Systems (TMS)
- Cash forecasting tools
- Accounts receivable automation
- Accounts payable automation
- Supply chain planning systems
- Business intelligence dashboards
Technology alone does not improve working capital. However, it can provide the transparency and control needed to identify opportunities and measure progress.
From Analytics to Decision Making to New Liquidity: A New Playbook for Work
If you want to see how analytics can be turned into working capital decisions and new liquidity, join Treasury Masterminds, ETR Digital, and Calculum on 24 June at 2:00 PM BST / 9:00 AM EDT for a practical session on closing the gap between identifying working capital opportunities and acting on them. Register for free and submit your questions in advance.
Financing Solutions
Operational improvements should generally be considered before introducing financing solutions. However, financing structures can sometimes support working capital objectives.
Examples include:
Supply Chain Finance
Suppliers can receive early payment from a financing provider while buyers retain their agreed payment terms.
Potential benefits include:
- Improved supplier liquidity
- Stronger supplier relationships
- Supply chain resilience
Receivables Financing
Companies can accelerate cash collection by financing outstanding receivables.
Common structures include:
- Factoring
- Receivables discounting
- Receivables securitisation
Inventory Financing
Certain industries may use inventory-backed financing structures to unlock liquidity tied up in stock.
Each solution should be evaluated carefully, considering costs, accounting implications and operational complexity.
Unlocking Liquidity: Flexible Working Capital Strategies
Interested in how supply chain finance and payment terms work in practice? Join Treasury Masterminds and SAP Taulia on 2 June at 4:00 PM CET / 10:00 AM EDT for a practical session on where working capital gets stuck and what treasury teams can realistically do to unlock it. Register for free and submit your questions in advance.
Creating a Working Capital Culture
The most successful working capital programmes are not one-off projects.
Instead, they become embedded within the organisation’s decision-making process.
Key success factors include:
- Clear executive sponsorship
- Shared KPIs across departments
- Regular performance reporting
- Cross-functional collaboration
- Data transparency
- Continuous improvement mindset
When sales, procurement, operations, finance and treasury work towards the same objectives, working capital improvements tend to be more sustainable.
Final Thoughts
Working capital is often described as a finance topic, but in reality, it is a business-wide responsibility.
Treasury plays an important coordinating role because of its visibility over liquidity, funding and cash flow. However, meaningful improvements require cooperation across sales, procurement, operations, supply chain, finance and technology teams.
The organisations that achieve the strongest results are typically those that view working capital not as a treasury project, but as a company-wide effort to improve cash generation, efficiency and financial flexibility.
In a world where access to capital is becoming more expensive and uncertainty remains high, effective working capital management continues to be one of the most valuable tools available to both treasury and the wider business.
Humans spend enormous effort searching for funding while millions sit trapped in receivables, inventory and inefficient processes. Working capital may not be the most exciting topic in the boardroom, but it is often one of the cheapest sources of cash a company already owns.
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