Follow the cash through operations
Inventory buys service capacity with cash. Customer credit supports sales while delaying collection. Supplier terms influence both payment timing and continuity of supply. A working-capital model should connect these choices rather than treating the cash conversion cycle as a finance-only score.
Stress-test the trade-offs
Compare scenarios such as slower collection, a supplier delay or a demand surge using one set of assumptions. Show the liquidity impact together with delivery risk and operating margin. A policy that frees cash today may create an expensive stockout tomorrow; the model must make that consequence visible.
Agree on ownership and a baseline
Finance, sales and operations should agree on decision rights and the measurement period. Track the cash conversion cycle alongside fulfillment, overdue receivables and supplier exceptions. Separate changes caused by policy from changes caused by growth, seasonality or exchange rates before attributing value.
A worked example
Illustrative assumptions for discussion, not a customer case or a performance claim.
Suppose annual sales are 3.65 million currency units and cost of goods sold is 2.19 million, using a 365-day convention. Average daily sales are 10,000 and daily cost is 6,000. Reducing receivable days by five corresponds to about 50,000 less capital tied up; reducing inventory days by five corresponds to about 30,000. These are balance-sheet approximations, not profit or guaranteed cash receipts. The policy must still pass customer-service and supplier-continuity checks.
Questions to take into a pilot
Are numerator and denominator measured over a comparable period? Is the change due to policy, seasonality or sales mix? Which customers or SKUs carry the risk? Agree a measurement window, reconcile opening and closing balances, and review collections and stockouts with the teams that own them. A useful pilot makes the cash timing and the service consequences visible in the same review.