Working capital: improving the process behind the numbers

Map the operating cycle before setting targets

ACCA explains working capital through inventory, receivables and payables, and describes the cash operating cycle as the interval between paying for inputs and receiving customer cash. The relevant components differ by business model. A professional services firm may focus on unbilled work and approval milestones, while a distributor also needs to understand stock availability and replenishment.

Map order acceptance, delivery evidence, invoice creation, customer approval, collection and supplier settlement. Note the systems and owners involved at each handover. Separate unavoidable commercial timing from delays caused by missing documents or unclear responsibilities.

Use ageing reports as a starting point for questions

Review overdue receivables by cause as well as age. An invoice under genuine dispute requires different action from an invoice sent to the wrong address. Record the next action, responsible colleague and expected resolution date. Reconcile the ageing report to the ledger so that cash already received, credit notes and unapplied receipts do not distort the discussion.

For a hypothetical service assignment, work may be complete but the invoice cannot be approved without a signed acceptance record. Repeated collection reminders will not fix that bottleneck. Confirming the acceptance requirement at the start of the assignment addresses the underlying process.

Make payment preparation and approval distinct

A practical payment checklist can connect the supplier record, agreed terms, invoice, delivery evidence and approval. Define who can create or change supplier details and who authorises payment. Where a small team cannot fully separate tasks, an additional documented review can provide visibility over exceptions.

NCSC warns that convincing emails and invoices can be used to divert business payments. A request to change bank details therefore deserves separate verification through an established contact channel, using contact information already held independently. Urgency and familiar branding are not evidence that a change is authentic.

Interpret measures in their commercial context

Collection days, inventory days and payment days help identify trends, but an average can conceal a concentrated overdue balance or seasonal stock build. Keep definitions and periods consistent. Explain whether a movement reflects sales mix, an unusual order, a disputed balance or an actual process change.

Lower inventory may create delivery risk, and delaying payment beyond agreed terms may damage a critical supplier relationship. Evaluate proposed changes with operations and procurement. Include the expected cash timing in a forecast, distinguish it from cash already realised and consider a slower-improvement scenario.

Manage a short, traceable improvement list

Select a few specific issues that the team can resolve, such as incomplete invoice references or delayed credit-note approval. Establish a baseline, an owner and a review date for each. Measure both the process outcome and any unintended operational effect. After a change, check transaction evidence and actual cash timing before describing an improvement. This creates a stronger basis for decisions than a target presented without an explanation of how it will be achieved.