Working capital management

Working capital — inventory plus receivables minus payables — is cash the business has invested in its day-to-day operations. Too much ties up cash that could repay debt or fund growth; too little risks stock-outs, lost customers and strained suppliers. Managing it is a balance, not a race to zero.

The cash conversion cycle (CCC) measures how long cash is tied up, in days:

• Inventory days (DIO) = inventory ÷ cost of sales × 365 — how long goods sit before they're sold.
• Receivable days (DSO) = trade receivables ÷ revenue × 365 — how long customers take to pay. (Use credit sales if cash sales are significant.)
• Payable days (DPO) = trade payables ÷ purchases × 365 — how long Calder takes to pay suppliers. (Cost of sales is a common substitute when purchases aren't available.)
• CCC = DIO + DSO − DPO.

Each day off the cycle releases roughly one day's flow of cash. For Calder, one day of sales is 10,000; one day of cost of sales is 7,000.

Levers and their costs. Receivables: invoice promptly and accurately, enforce terms, chase early, offer discounts for prompt payment (which cost margin). Inventory: cut slow-moving lines, improve forecasting, order more frequently (which may raise ordering and freight costs). Payables: negotiate longer terms by agreement — paying late without agreement damages supplier relationships and may breach contracts or local prompt-payment rules. Compare every lever with what the cash is worth to the business, usually its cost of borrowing.

Use year-end balances with care: a seasonal business can look very different at a different date, so averages or monthly trends give a fairer picture.