Cash trapped in debtors, inventory and weak supplier terms quietly funds your customers — not your growth. This tool quantifies exactly how much, and what releasing it is worth.
You are building a complete view of your value creation opportunity. Each step compounds the total impact.
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“Most businesses don’t lack opportunity. They lack structured execution.”
Related thinking: the forecast blind spot that traps working capital and cost lines that compound into cash drag.
Working capital is the cash tied up in the day-to-day operations of a business — primarily in trade debtors, inventory, and trade creditors. It represents the gap between cash you've spent (on stock and production) and cash you've received (from customers). Most businesses carry more working capital than they need to — cash that should be deployed elsewhere is sitting idle in the operating cycle.
The three key measures are DSO (debtor days, or days sales outstanding), DIO (inventory days), and DPO (creditor days or days payables outstanding). Net working capital days is DSO + DIO − DPO. The lower this number, the more efficiently the business converts its operations into cash.
EBITDA and cash flow are not the same thing. A business can generate strong EBITDA while simultaneously destroying cash — particularly during growth — if working capital is poorly managed. The cash conversion cycle determines how long it takes between spending cash on inputs and receiving cash from customers. A business with 70-day debtor terms and 90-day inventory holds, but only 20-day payables, may be cash-starved despite healthy profits.
Working capital is often the difference between a business that funds its own growth and one that constantly relies on debt to bridge the gap. Improving cash conversion — the ratio of EBITDA to free cash flow — is one of the fastest levers available to an operating partner or CEO.
Cash gets trapped through a combination of structural and operational factors. Slow-paying customers accumulate overdue balances when there's no disciplined collections process. Inventory builds when purchasing is not tied to demand — slow-moving stock lines consume cash with no return. Supplier terms remain suboptimal when procurement teams have not revisited payment arrangements. In aggregate, these behaviours represent a significant and often quantifiable pool of trapped cash that can be released through focused execution.
Improving the cash conversion cycle requires action across three levers. On the debtors side: structured collections cadences, aged debt reporting, escalation protocols, and credit terms enforced consistently. On inventory: stock rationalisation, SKU reduction, demand-led purchasing, and regular slow-moving stock reviews. On payables: extending terms with key suppliers, consolidating payment runs, and negotiating longer credit windows with strategic partners.
Implementation rate and execution discipline determine how much of the theoretical opportunity is actually captured. In our experience, a well-run programme across all three levers — with clear ownership and board-level visibility — typically realises 70–85% of the modelled improvement within 6–12 months.
Cash released from working capital directly funds growth capacity. A business that releases $2M from debtors and inventory has $2M available for network expansion, equipment, or new locations — without raising debt. Left trapped, that capital erodes enterprise value every quarter it isn’t released. Assess your branch expansion economics →
For private equity-backed businesses, working capital improvement is one of the highest-return value creation activities available. Cash released from working capital can be used to reduce debt (lowering interest costs and improving serviceability), fund organic growth (inventory, equipment, new locations), or return capital to investors. In each case, the enterprise value impact is material — because cash release improves both the numerator (EBITDA conversion) and the denominator (debt at exit) of the valuation equation.
A business that releases $2M from working capital through disciplined execution reduces net debt by $2M, saves $160K per annum in interest at 8% funding cost, and simultaneously demonstrate to acquirers a more cash-generative business model. This is the working capital premium — and it is systematically undervalued in businesses that have not actively managed it.