When working capital starts to absorb cash, the response is usually technical. A days payable analysis. A receivables ageing review. An inventory rationalisation. A push on supplier renegotiation. Each of these can recover some cash. None of them addresses the question that produced the build in the first place: why did this company stop deciding the things it had been deciding before?
In our experience, working capital is the cleanest operational expression of governance. When the decision system works, working capital tends to behave. When it does not, working capital absorbs the friction — and the technical fixes only work for as long as someone keeps applying them.
The aggregate evidence is hard to ignore. The Hackett Group's 2025 European working capital survey reports the cash conversion cycle deteriorating across the continent, days-inventory-outstanding at its highest level in a decade, and an estimated €1.4 trillion of excess working capital trapped in European balance sheets. This is not the macro tightening of cash. It is cash sitting inside companies, in the spaces where decisions on customers, products, and suppliers have been postponed.
1. Receivables stretch when no one is willing to make customers uncomfortable
A receivables build is rarely a credit problem. It is a relationship problem. Customers are paying late because the commercial team has stopped pushing them, the credit function does not have the authority to escalate, and the CFO is not in a position to overrule the customer-facing leaders who are protecting the relationship.
Each individual deferral is defensible. The aggregate is corrosive. The company is, in effect, financing its customers with cash that should be financing its own operations — and the decision to continue doing so is being made implicitly, by inaction, rather than explicitly, by anyone who could be held accountable for the cumulative cost. This is the kind of decision the governance system does not record. It does not appear on a Board agenda, does not surface in minutes, has no owner. But its effect compounds in cash every month that passes.
2. Inventory builds when no one is willing to call a price
Inventory deterioration is, more often than not, a pricing problem. The product is no longer moving at the assumed price, but no one is willing to acknowledge it — because doing so would expose a margin pressure the commercial plan does not account for, an SKU strategy that needs to be rationalised, or a supply commitment that was made before demand softened.
The result is that inventory accumulates. The discount that would have cleared it is not approved. The write-down that would have surfaced it is deferred. The company carries the cost of the unresolved decision on its balance sheet, where it earns no return and ties up the cash the operation needs. The dynamic is self-reinforcing: every month the decision is postponed, the scale of the action required grows. A 5% repricing in March becomes a 12% clearance in September, with a write-down attached. The visibility of the action increases with the delay, which makes it harder to take, which extends the delay.
3. Supplier terms tighten when the company stops being predictable
The third dimension is the most underrated. Supplier terms are not just a function of negotiating leverage — they are a function of how predictable the company is to deal with. Suppliers extend favorable terms to companies that pay on time, communicate clearly about exceptions, and behave consistently. They tighten terms with companies that miss payment dates, dispute invoices, or change instructions in ways that suggest internal disorder.
When governance fragments, the operational signals the company sends to its suppliers change. Payments are delayed not because cash is tight but because authorizations are unclear. Invoices are disputed not because they are wrong but because no one is sure who agreed to the order. Suppliers respond by tightening terms, and the working capital position deteriorates further — not because the company became less creditworthy, but because it became harder to deal with. In mid-market industrial settings, this assessment travels informally between suppliers in the same district or sector well before it reaches a credit insurer. The reputational tightening precedes the financial one.
What it takes to govern working capital, not just optimise it
Optimising working capital is a finite exercise. There is a floor below which receivables, inventory, and payables cannot be compressed without damaging the underlying business. Most of the recoverable cash can be released within two or three quarters, and after that, the work is governance.
Companies that govern working capital well share four properties. There is a single accountable owner for each component — receivables, inventory, payables — with the authority to make commercial trade-offs, not just operational ones. There is a decision rhythm fast enough to surface variances before they compound, and slow enough that operational decisions are not whipsawed week to week. The commercial, operational, and finance functions are aligned on the trade-offs the company is choosing to make — and the ones it is not. And the Board sees working capital as a leading indicator of governance, not as a treasury report.
When these are in place, the technical optimizations actually stick. When they are not, the cash that gets released in one cycle reappears as a build in the next. The work that lasts is the work that addresses what produced the build in the first place.
Working capital is the operational signature of how the company decides. The numbers tell a story about the decisions that have not been made. Reading them as a finance problem misses what the balance sheet is actually saying.
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References
- 2025 European Working Capital Survey: Cash Cycle Deterioration, The Hackett Group, November 2025.
- Distretti industriali: export resiliente nel 2025, incognite sul 2026, Intesa Sanpaolo Research, 2026.
- AI and Data Are Changing How CFOs and Treasurers Manage Working Capital, PYMNTS, January 2026.