How to increase duration of working capital?

Increasing working capital duration involves extending the time between cash outflows and inflows while improving business liquidity and operational flexibility. This strategy helps businesses manage seasonal variations, growth phases, and unexpected financial challenges more effectively.

Extend payment terms with suppliers whilst maintaining good relationships. Negotiate 30-60 day payment periods instead of immediate payments. This gives additional time to generate revenue before settling obligations.

Strategies include:

• Improving inventory turnover through better demand forecasting
• Implementing just-in-time inventory management
• Negotiating longer supplier credit terms
• Accelerating customer payment collection processes

Optimise cash conversion cycles by reducing the time between purchase and sale. Enforce efficient inventory management systems to make sure that there is no overstocking and obsolescence. Focus on fast moving products and eliminate slow-moving inventory through promotions or liquidation.

Enhance customer payment processes through digital payment systems, automated reminders, and incentives for early payments. Consider factoring or invoice discounting to convert receivables into immediate cash whilst maintaining customer relationships.

Working capital loans or credit lines provide temporary extensions during cash flow gaps. These facilities bridge timing differences between income and expenses without disrupting operations.

Monitor working capital metrics regularly including current ratio, quick ratio, and cash conversion cycle. Establish key performance indicators to track improvements and identify areas requiring attention.