Stories from the Front Line: Working Capital Myths and Misadventures
After decades in consulting, I’ve learned that working capital isn’t just about numbers – it’s about the stories behind them. And some of those stories are too good not to share. So here goes….
“It’s just BAU – everyone’s got this under control”
An audit partner once told me working capital management was a routine, business‑as‑usual activity and that all their clients had it nailed.
The reality? Around three‑quarters of companies could improve, and two‑thirds of those are significantly underperforming. In 35 years, I’ve never seen a business without opportunity – it’s a mindset thing.
“The client only sells to blue chip and public sector – no opportunity there”
Another partner dismissed the idea of improvement because bad debt was minimal. The assumption seemed to be that working capital is only about receivables and avoiding bad debt.
The reality? The big prize is often in improving cash flow – reducing late payments, optimising payables, and managing inventory.
“My DSO is 45 days, terms are net monthly – so my customers are paying on time”
A finance director proudly shared this. I can see why they might think so – after all, a customer paying to terms on net monthly would be taking around 45 days of credit. But this is not the same as DSO
The reality? DSO is usually measured at month end. It is a snapshot in time. If all customers paid on time to net monthly terms, DSO would be 30 days. At 45 days, roughly 30% of receivables are actually overdue. Not quite the picture‑perfect performance it seemed.
“We make to order – no scope to cut finished goods”
A CEO trusted their plants implicitly, despite holding 70 days of finished goods inventory.
The reality? In a make‑to‑order business, anything much beyond 15 days starts to look like a make‑to‑stock business. At 70 days, inventory levels are more likely a by‑product of chasing production efficiency for an extended period of time, rather than meeting customer demand.
“We’re extending the warehouse — we’ve run out of room”
On an Inventory walkthrough, an FD apologised for the building work due to the extension to the warehouse.
The reality? The real issue was the company was producing more than could be sold. The fix wasn’t more space – it was immediate tactical measures to manage production down and liquidating slow‑moving inventory, and longer term strategically rightsizing the manufacturing footprint.
“I post all invoices as due today – we need to pay our suppliers on time”
An AP clerk explained that invoice approval was often delayed, so this way the early‑paid invoices probably balanced out the late ones.
The reality? Process inefficiencies were hidden, controls undermined, and the cash flow picture distorted – masking opportunities to manage payments strategically.
“We send out our invoices at the end of the month – it’s more efficient”
A Billing Manager thought batching invoices monthly saved time.
The reality? Cash inflow was delayed by weeks, effectively giving customers a free loan. Efficiency for the admin function resulted in inefficiency for working capital.
Final thought:
These aren’t stories about incompetence – they’re about perspective. People optimise for what they’re measured on, and sometimes those measures quietly work against healthy working capital. The best leaders don’t just look at the KPIs; they get curious about the stories behind them.
Ready to unlock the cash trapped in your working capital?
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