NOTE: This exercise complements our blog post on Working Capital and ties directly to the Cash Conversion Cycle metrics that affect day-to-day decisions.

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Quick Refresher

Working capital is where cash hides in plain sight — and where smart decisions can set it free.

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Working Capital = Current Assets – Current Liabilities

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Working Capital  includes cash, receivables, and inventory — minus the value of payables and other short-term obligations.

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In this exercise, we’re focusing on three specific components of working capital that are central to day-to-day operations:

• Accounts Receivable
• Inventory
• Accounts Payable

(Payables don’t represent the full picture of current liabilities, but they are the areas most directly influenced by everyday business decisions.)

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Working capital is often treated as a finance-only issue. But anyone who touches customers, inventory, or suppliers can influence it — for better or worse.

The lower your working capital needs, the more cash you free up to use elsewhere.

What You Might Adjust (Examples)

Accounts Receivable (Getting Paid)

• Shorten payment terms for new customers
• Follow up sooner on overdue invoices
• Offer small discounts for early payment

Inventory (How Much You Hold)

• Switch from monthly to weekly deliveries
• Share inventory across locations or teams
• Tighten reorder points or safety stock

Accounts Payable (When You Pay Others)

• Ask suppliers about extending payment terms
• Align payment timing with incoming cash
• Avoid paying early unless there’s a clear benefit

Estimate the Cash Impact

If you know your annual sales, COGS, and balance sheet values for receivables, inventory, and payables — you can calculate your:

• DSO (Days Sales Outstanding) = (Accounts Receivable ÷ Sales) × 365
• DIO (Days Inventory Outstanding) = (Inventory ÷ COGS) × 365
• DPO (Days Payable Outstanding) = (Accounts Payable ÷ COGS) × 365

These metrics show how long your money is tied up before it comes back as cash. This is known as the Cash Conversion Cycle.

             Cash Conversion Cycle = DSO + DIO – DPO

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Now suppose you could:

• Reduce DSO by 2 days
• Reduce DIO by 2 days
• Extend DPO by 3 days

What would that mean in terms of cash?

Use the calculator below to explore the possibilities. This tool shows both your current metrics and how much cash you could potentially free up by making small changes. The goal isn’t precision — it’s visibility. And action.

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Take It Further

• What team or role would you need to involve to make this happen?
• Could you pilot this change in a small area first?
• What would the business gain if that cash were freed up?

Working capital isn’t just a metric — it’s a daily reality. Start the conversation where you work.

If you want to explore how these metrics fit into a broader financial story, check out our blog post on the Cash Conversion Cycle:

👉 Understanding the Cash Conversion Cycle

It breaks down how receivables, inventory, and payables interact — and explains why CCC is one of the clearest indicators of business efficiency.

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That’s it! Short, practical, and hopefully useful.

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