New Year’s Resolutions for Improving Your Company’s Working Capital 

Use the next 12 months to enhance one of the most important aspects of a company’s operations.

Many business executives and finance leaders use the new year as an opportunity to set new goals for their companies. Working capital management might be one of their biggest areas of opportunity — and one of the most in need of attention. 

The Hackett Group looked at working capital metrics for the top 1,000 publicly listed US companies. In 2023, all those KPIs worsened on average — the first time that has happened in 10 years. 

Among 2,500 listed companies, Deloitte found, the average cash conversion cycle increased from 22.5 days in 2021 to 26.8 days in 2023. 

A lack of working capital could prevent a business from taking advantage of new opportunities — or simply paying all its bills. 

Plus, companies can enjoy significant upside if they improve their working capital management. Globally, middle-market companies with the most efficient working capital management saved about $3.3 million on average in 2023, Visa’s Growth Corporates Working Capital Index reported. 

If stronger working capital is a priority for your organization, here are a few strategies to adopt in 2025. 

Rethink how performance is reported

McKinsey & Co. recommends emphasizing different KPIs to draw more attention to the importance of working capital. Most companies concentrate on EBITDA, which is important but doesn’t note changes in working capital. 

Instead, give more attention to free cash flow to show everyone how well the company is producing cash from its operating activities or if trouble is ahead. 

Upgrade invoicing

Companies can get paid faster if they automate their invoicing and offer multiple payment methods, including online portals. It’s also important to clearly communicate with customers so they know how, when and how much to pay. 

Many customers will pay faster if they have an incentive. Consider offering discounts for early payments. 

Do the math when setting goals

Some managers pick a number out of thin air when they set targets for the new year — 1%, 5%, 10%, whatever seems reasonable compared to the previous year. But if they don’t reflect “conditions on the ground,” those goals could be too aggressive or not aggressive enough. 

Try using a clean-sheet analysis, McKinsey & Co. recommends. 

Maybe a company wants to reduce its cash conversion cycle, which would make its use of working capital more efficient. 

Instead of choosing an arbitrary number, the company should examine each part of the cycle to identify how change is possible in each segment. If the current number of days inventory outstanding (DIO) is 30, could the sales process change so deals close faster? Or maybe there’s only so much room for improvement because it always takes 15 days for production. 

By digging into the details, the company is more likely to create a realistic but worthwhile goal.

Get serious about collections 

Ideally, most customers pay their bills without intervention. Some may need a little encouragement. Boost your company’s cash flow by implementing automated reminders to customers. 

Start producing an aging report for your accounts receivable if your company isn’t already doing so. It will highlight at-risk accounts so your team can give them more attention. 

Some businesses have improved collections by creating a team or even hiring a consultant to collect from slow-paying and nonpaying customers. 

Consider just-in-time inventory management

With a just-in-time approach, companies order materials and inventory only when they’re needed. This can reduce the amount of time that capital is tied up in inventory, benefiting cash flow. 

However, companies must be aware of the potential dangers of just-in-time ordering, too. If the supply chain experiences a delay — or something more severe, like a global pandemic — it could shut down production or leave a company without stock. 

Businesses can guard against these delays with dedicated platforms for inventory management and by using analytics to predict demand. Companies should also build relationships with multiple suppliers and consider near-shoring — using nearby vendors so shipping is less of a concern. 

Cut unnecessary expenses

Holding a line-item budget review can break spending into specific categories with comparisons to previous years. 

It’s a great way to identify areas where the organization is spending too much or costs are increasing too quickly. Department heads should be part of the conversation, helping to point out potential savings. 

Negotiate better payment terms with suppliers 

Ask if vendors will approve longer payment terms or give discounts for early payment. Both methods can help a company’s cash flow. The company holds on to its cash longer if the invoice is due in 45 days instead of 30 days. Scoring an early payment discount lowers the company’s cost of goods and improves its margin. 

The bottom line about working capital management 

A company’s level of working capital is an important measure of its day-to-day health. Improving this KPI will increase its ability to withstand challenges and pay for growth. Businesses should dedicate more time to active reporting and careful planning while also upgrading invoicing and collection. 

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