Working Capital Hunts: AR, AP, and Inventory Moves That Free $10M

Working capital is trapped time. The objective is to convert that time back into cash without harming revenue lanes or supplier resilience. This article lays out a precise, 13-week program to release approximately $10 million in cash from accounts receivable (AR), accounts payable (AP), and inventory—all governed by a short cadence and backed by artifacts a lender or buyer can verify.

1) Objective and guardrails

• Free cash quickly while protecting demand, quality, and supply continuity.

• Use policy and process before price or volume concessions.

• Create an audit trail: every move must reconcile to ledgers and bank statements.

• Treat changes as rules with owners and expiry dates, not suggestions.

2) The cash map (what to change and how it pays)

• AR: lower DSO by enforcing terms, closing disputes, and cleaning billing mechanics.

• AP: raise DPO by normalizing terms, batching approvals, and phasing payments to the cash calendar.

• Inventory: reduce days on hand (DOH) by SKU actions and supplier MoQ/lead-time alignment.

Core equations

• Sales per day = Annual Revenue ÷ 365

• COGS per day = Annual COGS ÷ 365

• AR cash release = (DSO_old − DSO_new) × Sales per day

• AP cash release = (DPO_new − DPO_old) × COGS per day

• Inventory cash release = (DOH_old − DOH_new) × COGS per day

3) Where the first $10M usually hides (illustrative baseline)

Assume: Revenue $300M, COGS $195M, DSO 62 days, DPO 37 days, DOH 74 days.

Notes: Sales/day ≈ $0.822M; COGS/day ≈ $0.534M. Targets are conservative and reachable in one quarter with disciplined execution.

 

 

 

4) AR: convert receivables to cash without discounting

Moves

• Dispute blitz: top 10 reason codes, owners, closure target ≤ 14 days.

• Billing hygiene: align order close dates with invoice dates; eliminate manual credit notes by fixing renewal timing and tax/shipping rules.

• Term enforcement: codify standard terms; any deviation requires CFO approval with expiry.

• Collections playbook: three-step cadence (reminder → escalation → credit hold) with dated templates.

AR operating table (working view)

Policies

• No courtesy credits without root cause removal.

• Early-pay incentives limited to SKUs with high contribution margin; impact logged.

5) AP: buy time without damaging supply

Moves

• Term normalization: standardize to “Net 45” (or closest achievable) for Tier-1/Tier-2 suppliers.

• Approval cadence: align batch approvals with the weekly cash calendar; no Friday surprises.

• Phased releases: split large payments across weeks to smooth headroom.

• Discount ROI test: take discounts only where annualized return exceeds hurdle.

AP supplier map (illustrative)

Policies

• No off-cycle wires unless approved in the cash standup.

• Capture discounts only if annualized ROI ≥ 15–18% after fees.

6) Inventory: shrink DOH without starving demand

Moves

• SLOB program: identify slow/obsolete by aging and turns; action: markdown, bundle, refurb, scrap.

• SKU diet: retire low-velocity variants that drive handling cost; enforce case packs and MoQs.

• Planning discipline: refresh demand plan for top 50 SKUs; align safety stocks and supplier lead times.

• Two-family turn focus: pick two large families for visible DOH improvement.

Inventory action sheet (illustrative)

7) 30-60-90 day plan (who does what, when)

Days 1–30: see and stabilize

• Reconcile DSO/DPO/DOH to ledger.

• Launch dispute blitz and publish top 10 table.

• Lock AP approval calendar and supplier term playbook.

• Freeze purchases on discontinued SKUs; publish SLOB list.

Days 31–60: move the numbers

• Close ≥ 60% of open disputes; enforce standard terms on Tier-1 vendors.

• Run two inventory pilots (bundle + markdown) and extend to families.

• Phase large AP releases across weeks; enforce “no off-cycle without approval.”

Days 61–90: codify and scale

• Write new policy addenda into contracts and SOPs.

• Embed AR cadence and AP batching into the weekly cash standup.

• Archive before/after metrics and bank-tie evidence for lenders/buyers.

8) Weekly cadence (30 minutes)

• AR: last week collections vs forecast; top five disputes; owner dates.

• AP: this week’s batches; large releases; discount ROI decisions.

• Inventory: two-family DOH trend; SLOB actions completed; next actions.

• Headroom: covenant proximity bar; decisions required.

9) Metrics and thresholds

10) Risks and mitigations

11) Controls and lender communication

• Maintain a 13-week cash tile; reconcile weekly to bank balances.

• Archive dispute logs, AP calendars, and SLOB actions with dates and amounts.

• Share a one-page headroom trend and a monthly working capital bridge with lenders.

• If needed, obtain short-term flexibility backed by the executed cash program.

12) Exit-back packaging (make the gains travel)

• Before/after DSO, DPO, DOH with exact dates, amounts, and owners.

• AR dispute reason-code trend and closure cycle time.

• Supplier term matrix (old → new) with effective dates.

• SLOB/sku-diet evidence: lists, actions, proceeds, write-offs.

• 13-week cash snapshots and bank tie-outs for the quarter.

13) 13-week cash ramp (illustrative)

Actuals vary by mix, dispute complexity, and supplier leverage. The key is cadence and evidence.

 

 

 

 

14) One-page checklist

• DSO/DPO/DOH reconciled to ledger

• Dispute blitz live with owners and dates

• AP approval calendar published and followed

• Supplier term changes signed and staged

• SLOB list approved; SKU diet enforced

• Two inventory families tracked weekly

• 13-week cash tile reconciled; headroom trend published

• Immutable monthly archive in place

VCII Note and Copyright

TVC Next treats working capital as an engineered system: policy, cadence, and clear artifacts that convert time into cash without collateral damage to revenue or supply. The objective is cash today and a verifiable story at exit.
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