Quick answer
SMEs can release working capital by accelerating billing and collections, reducing slow inventory, negotiating supplier terms, aligning payment timing, improving pricing and deposits, controlling project work-in-progress, and forecasting cash more actively. The aim is to shorten the cash conversion cycle without damaging healthy growth.
Key takeaways
- Working-capital improvement starts before an invoice becomes overdue.
- Billing speed, collections, inventory, supplier terms and work-in-progress all affect liquidity.
- A 13-week cash forecast helps management prioritise actions before pressure becomes urgent.
- Sustainable cash release comes from operating discipline, not simply delaying payments or cutting growth.
Finance Director lens
From a Finance Director perspective, working capital is a cross-functional operating issue. Finance can measure the gap, but sales, operations and procurement often control the actions that release the cash.
When cash becomes tight, the instinctive response is often to cut spending. Sometimes that is necessary, but it is not always the best first move. A business can often release meaningful cash by improving the way money moves through receivables, inventory, work-in-progress and payables.
1. Invoice earlier and remove billing delays
A surprising amount of cash is lost before the collection process even starts. Invoices may wait for timesheets, delivery confirmations, customer purchase orders or internal approvals. Map the steps from completing the work to issuing the invoice. Every unnecessary day in that process adds to the cash conversion cycle.
2. Manage receivables as a commercial process
Collections should not begin only after an invoice is overdue. Credit terms, customer limits, billing accuracy, dispute resolution and relationship ownership all matter. Segment receivables by value and risk, focus senior attention on material overdue balances and track promises to pay. Where appropriate, commercial teams should share accountability for cash collection rather than leaving the issue entirely to finance.
3. Reduce slow-moving inventory intelligently
Blanket inventory cuts can damage service levels. Instead, classify stock by demand, margin, lead time and criticality. Identify obsolete and slow-moving items, challenge minimum order quantities and review whether safety-stock assumptions still reflect actual demand. The goal is not “less inventory at any cost”; it is the right inventory for the sales model.
4. Negotiate supplier terms around the operating cycle
If customers pay in 60 days but major suppliers require payment in 15, the business is financing the gap. Where relationships allow, negotiate terms that better reflect the cash cycle. However, extending payables indiscriminately can damage supplier trust or lose early-payment discounts. The decision should consider both liquidity and total commercial value.
5. Change commercial terms for cash-intensive work
For projects, customised products or long delivery cycles, consider deposits, milestone billing or progress payments. A contract can be profitable but still create severe cash pressure if the company funds all costs before receiving customer cash. Finance should be involved in commercial terms before the contract is signed, not after the cash gap appears.
6. Control work-in-progress and unbilled revenue
Professional services, engineering, logistics and project businesses can accumulate substantial work that has been performed but not yet billed. Track work-in-progress ageing, billing milestones and project documentation. Delays often arise because operational teams do not realise that missing paperwork is delaying cash.
7. Use a rolling 13-week cash forecast
Working-capital initiatives become more effective when management can see their timing impact. A 13-week forecast highlights the weeks where collections, supplier payments, payroll, tax and financing obligations interact. It allows management to prioritise actions before liquidity becomes urgent.
Measure the cash conversion cycle
The cash conversion cycle combines receivable days, inventory days and payable days to show how long cash is tied up in operations. The exact measure is less important than understanding the trend and the operational causes behind it. Improvement targets should be realistic and linked to customer and supplier behaviour.
Do not optimise one metric in isolation
Reducing inventory may improve cash but hurt sales. Delaying suppliers may improve liquidity but weaken supply reliability. Tightening customer terms may reduce receivables but make the business less competitive. Good working-capital management balances cash, margin, growth and relationships.
The strongest businesses treat working capital as a shared management responsibility. Finance provides the measurement and forecast; sales influences customer terms and collections; operations manages stock and delivery; procurement shapes supplier terms. That cross-functional discipline can release cash without sacrificing the growth the company is trying to fund.
How to turn working-capital improvement into a routine
Working-capital improvement is rarely sustained by a one-off collection drive. Build a monthly operating rhythm. Review the largest overdue accounts, slow inventory, material supplier-term changes and forecast cash gaps with named owners. Track both absolute cash released and the operational drivers such as receivable days, inventory turns and billing cycle time.
Management should also distinguish structural improvement from temporary timing. Delaying one supplier payment may improve month-end cash but does not strengthen the business. Reducing recurring billing delays or changing contract milestones can. The most valuable improvements are those that permanently shorten the cash cycle without damaging customer service, supplier resilience or growth capacity.
For owners, the practical message is simple: cash improvement should come from better operating discipline, not from starving the business. When working-capital actions are linked to commercial reality and reviewed consistently, they can fund growth internally and reduce the amount of external financing the company needs.
Common questions
What is the quickest way to improve working capital?
There is no universal single action. Billing delays and large overdue receivables are often good places to start because they may release cash without reducing sales or strategic investment.
Should a business simply delay supplier payments to improve cash?
Not as a routine strategy. Extending payments can damage supplier relationships and may only create temporary timing relief. Structural improvements to billing, collections, inventory and commercial terms are more sustainable.
Bring the Numbers Into the Decision
Sivora Paige provides senior, hands-on finance leadership for growing SMEs and founder-led businesses, with specialist depth in maritime and shipping.
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