Working capital
Quick answer
The difference between current assets and current liabilities - the cash a company has to fund daily operations. A key financial-health indicator.
Key takeaways
- DSO (days sales outstanding) - how fast you collect from customers
- DIO (days inventory outstanding) - how long goods sit in the warehouse
- DPO (days payable outstanding) - how long you defer supplier payments
What working capital is
Working capital = Current assets - Current liabilities. It represents the operational liquidity a company has to cover short-term obligations and fund current activity (inventory, receivables, supplier payments). Positive, optimised working capital = a healthy firm; negative - or too high (tied up in inventory) - signals risk.
The cash conversion cycle (CCC)
The three drivers C-level tracks to optimise working capital:
- DSO (days sales outstanding) - how fast you collect from customers
- DIO (days inventory outstanding) - how long goods sit in the warehouse
- DPO (days payable outstanding) - how long you defer supplier payments
Formula: CCC = DSO + DIO - DPO. The lower the CCC, the less cash is locked in operations.
Why it is a board priority
Excess inventory and overdue receivables tie up cash that could fund growth. Cutting the CCC by a few days frees, at a firm with tens of millions in revenue, hundreds of thousands in cash - with no new borrowing. That is why optimising working capital is a strategic CFO objective.
How CRMconnect helps
CRMconnect is not accounting software and does not compute financial ratios - those stay in the ERP/accounting tool. What CRMconnect does, as an operational layer: directly reduces DIO (through inventory optimisation and dead-stock elimination) and DSO (through correct, fast, error-free invoicing). Concrete impact on working capital, attacked from the operational side, not the accounting side.
Real-world example
A distributor with RON 80M revenue had a CCC of 74 days (DSO 45, DIO 52, DPO 23). By optimising inventory with CRMconnect (DIO down to 38) and error-free invoicing (DSO to 38), the CCC fell to 53 days - equivalent to ~RON 4.6M cash freed, with no new financing.
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Frequently asked
What is working capital?+
Working capital is the difference between current assets and current liabilities - the liquidity a company has to fund daily operations and cover short-term obligations.
How is working capital calculated?+
Working capital = Current assets - Current liabilities. Its efficiency is tracked via the cash conversion cycle: CCC = DSO + DIO - DPO.
Why is working capital important to management?+
Excess inventory and overdue receivables tie up cash that could fund growth. Shortening the conversion cycle frees cash without new borrowing - a strategic CFO objective.
How does CRMconnect help optimise working capital?+
CRMconnect is not accounting software and does not compute the ratios. As an operational layer it reduces DIO (inventory optimisation, dead-stock removal) and DSO (fast, error-free invoicing), attacking working capital operationally.
Where CRMconnect fits
Related terms
Cash flow
The actual movement of money in and out of a company over a period - a measure of liquidity, not profit.
FinanceDSO (Days Sales Outstanding)
Average number of days from invoice issue to cash collection. Key cash-flow indicator.
FinanceDPO (Days Payable Outstanding)
Average number of days from supplier invoice receipt to actual payment.
LogisticsInventory turnover
How many times stock is fully sold and replenished in a period - a measure of capital efficiency.