Working capital optimisation is the practice of shortening the time cash is tied up in receivables, inventory, and early supplier payments so you have more availability to run and grow your business. Since profit and cash aren’t the same, a company can post a profit every quarter and still fall short on payroll when customers pay slowly and stock sits on shelves. That’s why optimising working capital is important. S&P 1500 companies reported near-record working capital levels in 2024, with about US$707 billion of trapped liquidity.

Below, we discuss how to measure working capital with the cash conversion cycle (CCC), the tactics that move collections and payables, and how liquidity shapes decisions about hiring, inventory, and expansion.

Key takeaways

• Working capital optimisation shortens the time between paying for operations and collecting cash from customers. To measure that gap, the cash conversion cycle (CCC) adds days inventory outstanding (DIO) and days sales outstanding (DSO), then subtracts days payable outstanding (DPO). At US$3.65 million in annual revenue, dropping DSO from 40 days to 30 days frees about US$100,000.

• The biggest gains come from faster collections, deliberate payables timing, and leaner inventory. If you invoice on delivery, add payment links, and follow up on a schedule, you’ll reduce DIO and pay suppliers on the due date instead of early, extending DPO without straining relationships.

• A rolling forecast built on real payment data shows cash shortfalls well before they arrive. Comparing actuals with projections shows where collections lag, or spending needs control.

What is working capital optimisation?

Working capital optimisation is the process of improving how a business manages its short-term assets and liabilities to quickly convert assets into cash and pay off short-term debts and daily expenses. Working capital is calculated with a simple formula: current assets, such as cash, receivables, inventory, and anything else that becomes cash within 12 months, minus current liabilities, which include payables, accrued wages, taxes owed, and debt due within the year.

Optimising working capital means managing each component so cash moves through the business quickly without leaving operations short. The CCC – the number of days between paying for inputs and collecting from customers – best measures this pace.

It combines three metrics:

• Days inventory outstanding (DIO): How long inventory sits before it sells, which is calculated as (average inventory ÷ cost of goods sold) x 365

• Days sales outstanding (DSO): How long customers take to pay, which is calculated as (average accounts receivable ÷ revenue) x 365

• Days payable outstanding (DPO): How long you take to pay suppliers, which is calculated as (average accounts payable ÷ cost of goods sold) x 365

The cycle is DIO + DSO − DPO. With 45 days of inventory, 40 days of receivables, and 30 days of payables, you fund 55 days of activity from your own cash before customers pay you back. Each day you cut releases funds. At US$3.65 million in annual revenue, roughly US$10,000 arrives daily. If you drop DSO from 40 to 30 days, you free about US$100,000.

Why does working capital optimisation matter for liquidity and growth?

Liquidity determines your ability to pay obligations as they come due, and most of it sits in working capital.

A tighter cycle increases liquidity, offering four concrete benefits:

• Less borrowing: Long cycles often require a credit line, which means you’ll pay interest to finance your customers’ payment terms. Freed-up funds replace that debt and keep the line free for real emergencies.

• Growth you can fund: A shorter cycle generates internal working capital you can reinvest directly into expansion without relying on debt or outside investors.

• Room to act on opportunities: A supplier’s volume discount or a candidate you want to hire this month won’t wait for customers to pay. Available cash lets you say yes on your own timeline.

• A cushion in a downturn: Customers might pay more slowly if economic conditions worsen, stretching DSO just as sales fall. A business that’s already shortened its cycle can absorb the wait.

What working capital optimisation strategies can businesses use?

Gains typically come from collection speed, inventory holding periods, and payment timing.

Here’s how to calibrate those variables to enhance working capital:

• Build daily cash visibility: You can’t manage what you see solely at month-end close. Pull bank balances, open receivables, scheduled payables, and expected payouts into one daily view.

• Shorten collections: Faster invoicing, easier payment options, and consistent follow-up can all reduce DSO.

• Pay deliberately: Setting up supplier bills on the due date rather than the day the invoice lands extends DPO.

• Cut inventory that isn’t moving: Rank stock keeping units (SKUs) by revenue contribution and turnover, then reduce orders or liquidate the slowest sellers.

• Allocate cash by purpose: Split available funds into an operating reserve that covers a set number of weeks of fixed costs, funds committed to known payments, and the remainder free to deploy.

How can businesses speed up collections and manage payables more strategically?

Collections changes usually show up in DSO within one or two billing cycles, while shifts in disbursements take effect as soon as you adjust payment timing. To manage payables better, hold cash as long as your terms allow – a factor shaped by your supplier relationships.

Here are some more ways to be strategic about payables:

• Pay on the due date: Setting a net 30 invoice on day 5 gives the supplier 25 days of your cash for no reason. Schedule and automate payments for that deadline instead.

• Take discounts when the math works: If you pay early on 2/10 net 30, it’s usually better than leaving cash in the bank because the same 37% annualised figure applies in reverse.

• Negotiate longer terms: Many suppliers will move from net 30 to net 45 or net 60 in exchange for volume commitments, extended contracts, or consolidated spend.

• Don’t pay past the due date: Paying late can lead suppliers to expect prepayment, deprioritise your orders, or withdraw discounts.

With collections, every day between delivering work and receiving funds adds to DSO. To close that gap, follow these best practices:

• Invoice on delivery: Attach invoices to shipments, milestones, or contract start dates instead of batching them at month-end.

• Make payment straightforward: Add a payment link to every invoice and accept credit cards, bank debits, and digital wallets alongside bank transfers. One click is easier than typing in remittance details.

• Set terms by risk: Run credit checks on new accounts, and require deposits or shorter terms from customers with weak payment histories. Bill large projects in milestones so you never carry the full contract value.

• Use early payment discounts selectively: Terms such as 2/10 net 30 cost you about 37% annualised and give customers a 2% reduction if they pay within 10 days of the invoice date. Offer discounts when the cash is worth more than the discount itself.

• Follow up on a schedule: Send reminders before the due date, on the due date, and at fixed intervals after.

How do forecasting and automation support working capital optimisation?

A forecast reveals where cash will be, and automation keeps the underlying data current. Without both, working capital decisions might happen after a shortfall has already affected the account balance. Many finance teams run a rolling 13-week cash forecast using the direct method: opening balance plus expected receipts each week, minus scheduled disbursements such as payroll, rent, supplier payments, and debt service.

Base your receipts on how customers actually pay. Each week, drop the oldest week, add a new one, and compare actuals with projections. A recurring gap in receipts points to collections problems with specific accounts, while a gap in disbursements can signal spending requiring tighter controls.

Manual reconciliation slows forecasting and surfaces failed payments late. Automation solves this. Stripe, for example, automates several inputs to improve working capital.

Here's what that means in practice:

• Invoicing: Stripe Invoicing sends invoices with a hosted payment page that accepts cards, bank debits, and digital wallets, and issues automatic reminders before and after the due date.

• Recurring payments: Stripe Billing collects subscription and usage-based revenue on schedule. Smart Retries uses machine learning to time retries of failed payments, and automatic card updates refresh expired or replaced card details.

• Payment data: The Stripe Dashboard and financial reports show balances, upcoming payouts, and the transactions in each payout, which speeds up bank reconciliation. Stripe Data Pipeline sends the information to your data warehouse to feed the forecast model.

How does working capital connect to broader financial operations?

Nearly every major business decision changes some part of the CCC.

Three decisions show that connection directly:

• Hiring: A new hire is a fixed monthly outflow from day one, while the revenue they support can take months to collect. Time headcount to when released cash can carry it.

• Inventory: Buying ahead for peak season or locking in a volume price raises DIO and ties up funds for months. Size those purchases against your 13-week forecast.

• Expansion: New markets bring new receivables, sometimes on longer customary terms, plus inventory and setup costs that land before revenue does. Model that added working capital upfront.

How Stripe Treasury can help

Stripe Treasury brings payments and finances together on Stripe, so businesses can receive, store, send, and spend funds in one place. It's built for startups and growing businesses that want to move money faster and spend less time managing financial operations. Platforms, marketplaces, and fintechs can also offer financial services to their users with Treasury for platforms.

Treasury can help you:

• Simplify your financial operations: Manage money, payments, card spend, payouts, and more from the Stripe Dashboard.

• Move money faster: Access settled Stripe earnings right away and send instant transfers to other businesses on Stripe without cost.

• Get more from your money: Earn cashback on card spend and Stripe fee credits on qualifying balances.

• Operate globally with ease: Hold balances in multiple currencies, convert only when needed, and send payouts to recipients in 160+ countries.

• Automate financial operations: Use agents to analyse cash flow and automate tasks such as paying invoices, moving money, and converting currencies within limits you set.

Learn more about how Stripe Treasury can help you manage your finances and payments in one place, or get started today.

Stripe Treasury includes various distinct Stripe products. See applicable product terms. Stripe is not a bank. Current accounts are provided exclusively by Fifth Third Bank, National Association, Member FDIC. Deposits are insured through Fifth Third Bank.

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