5 Principles of Working Capital Management

The goal of working-capital management is to shorten the cash-conversion cycle as much as possible without disrupting operations. Collection discipline, inventory optimization and supplier-term management are its three core pillars.

The first principle is to measure: days sales outstanding, days inventory and days payable should be tracked regularly. The second is matching the timing of cash inflows and outflows. The third is planning a buffer for seasonality.

The fourth principle is using alternative instruments as a bridge; factoring and supply-chain finance can close short-term gaps. The fifth is scenario planning: the worst-case cash shortfall should be computed in advance.