Averden Advisory · Editorial perspective
Working capital is the cash tied up in running the business day to day: money owed by customers, plus stock, minus what you owe suppliers. The more you need, the less cash is available for anything else.
The cash conversion cycle measures how long a pound spent on stock or labour takes to return as cash from a customer. Shortening that cycle releases cash without any new sales.
For example, a wholesaler holding 90 days of stock, collecting in 60 days and paying suppliers in 30 has a 120-day cycle. Reducing stock to 60 days and collecting in 45 halves the cash the business needs to operate.
Review your cycle regularly. Small, sustained improvements in debtor days, stock turn and supplier terms compound into a materially stronger cash position. This article is general information, not personalised advice.
This article is general information and is not legal, financial or insolvency advice. Please seek advice on your specific circumstances.
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