If you want to get serious about measuring your working capital cycle in detail, and seeing how changes may improve it, there's a calculation you can perform.
In basic terms it's this: Inventory Days (how long it takes to sell your stock) plus Receivable Days (how much credit you give customers) minus Payable Days (how much credit you get from suppliers) equals your working capital cycle.
Let's say you purchase stock on 30 days’ credit. On average, it takes you 45 days to sell all that stock. Your customers have an average credit term of 14 days.
That's 45 Inventory Days plus 14 Receivable Days, totalling 59 days. Minus the 30 Payable Days and your working capital cycle is 29.
In other words, you have working capital tied up in unsold stock for 29 days. There's a cost to having cash tied up this way.
If you can make changes that reduce your working capital cycle to 23 days, you've cut the cycle by around 20%. This could make a significant difference.
Calculating your actual working capital cycle is probably more complicated, particularly if you're in manufacturing or provide services rather than selling inventory. But the principle remains the same.
Talk to us about improving your working capital cycle
Fast, professional and supportive. These are common sentiments we hear in the feedback from our clients. This tells us that we're doing the right thing for business owners like you.
We frequently get calls from people who need cash to grow their business. They know there's an opportunity, they're confident in their capability to deliver, and all they need is an injection of capital.
When you call, we'll ask why you want to raise funds and how you plan to use them. Then we'll match you with one or more appropriate funders (we work with around 250) and help you through the application process.
Our job is to help you get the working capital you need, when you need it, at a cost that's affordable.
If you want to know more about how we could help you improve your cashflow, get in touch today.
As a founder of multiple businesses, Jamie believes that mindset, discipline and ambition are key drivers for success, both for his businesses and for his clients.
Share this article
The first steps towards the funding your business deserves
Disclaimer: JD Capital Finance (Registered office -First Floor, Steeple House, Church Lane, Chelmsford, England, CM1 1NH, Registered Number 10128297) helps UK firms access business finance, working directly with businesses and their trusted advisors. We are a credit broker and do not provide loans ourselves. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. JD Capital Finance can introduce applicants to a number of providers based on the applicants’ circumstances and creditworthiness. JD Capital Finance may receive a commission or finder’s fee for effecting such introductions.