Working Capital is Cool Again
Working Capital Is Cool Again
Working capital is cool again.
Not because finance suddenly got more exciting, but because money stopped being cheap.
Interest rates feel generationally high to many of today’s business leaders. Historically, they’re actually pretty normal. But rates remain structurally higher than they were for most of the 2010s.
Meaning, for many of us at a leadership level, it’s becoming clear that we lived most of our adult lives with nearly free money.
I used to be in banking, and similar to Y2K, we had to plan for business continuity if prime went negative because the machines and software weren’t set up for it. And it was a real possibility!
Many of my friends and I now sit around, like nerds, and realize we could have done more with the opportunity.
Hindsight makes all of us the best financial advisors?
Anyway.
Cheap money also meant we didn’t pay as much attention to working capital as we need to now.
We’d get a loan and use it as the backstop.
The generation that is now your CFO learned the ropes with cheap capital. Now, we need to shift our attention back to liquidity.
Regardless of business size or industry, we are identifying working capital and cash efficiency as major priorities.
A financial strategy led with this liquidity lens can also be a hidden growth strategy.
There is still a place for working capital loans. I still advise companies to get one before they need it and use it as a lever for liquidity and cash management.
You should never be in a place where you need to move money around to make payroll. You deserve a working capital loan that helps you manage the dips and days with confidence.
But you also need a CFO who understands that:
Inventory matters.
Collections matter.
Payment terms matter.
Cash conversion cycles matter.
And, more importantly, one who helps the rest of the business understand why.
I Am a Magician
I was out with a group of business owners the other day, and I joked:
“I am a magician. I can fix your cash flow within minutes of looking at your business…
…Most of the time, you aren’t invoicing!”
Ta-da.
And it’s true.
The number of businesses that don’t consistently invoice on a clear schedule is staggering.
Invoices aren’t sent. Collections aren’t attempted. There is no process. No consistency.
These sound like small operational problems.
They aren’t.
They create working capital problems. They also create customer experience problems.
You’d be surprised how much unpaid, and often late, invoices can drive a customer crazy. Customers don’t like working capital surprises either.
When you pile up amounts owed or ask for payment late, the value you provided is no longer top of mind.
It becomes about the money.
A Dumb Example From Yesterday
I asked a healthcare provider for a statement of account because my husband noticed I hadn't given him invoices, and our annual employee benefits were due at the end of the month.
They promptly emailed it and mentioned, almost in passing, that the credit card they had on file had expired.
Interesting.
I had been receiving emails from them saying, “Action Requested: You have a form to complete.”
I never opened them.
Maybe I’m a terrible customer, but I assumed they were asking me to update health information again. Turns out, apparently, they wanted an updated credit card.
So I asked the obvious question:
“Do I owe anything then?
If so, call me, and I can give you my card. Or let me know how to resolve it?”
She called.
Turns out I was nearly a month overdue for a service where payment was supposed to happen immediately after the appointment.
I had no idea.
And very little effort had been made to collect.
Meanwhile, I happen to know the healthcare provider is a contractor who also went unpaid.
That makes me feel shitty.
But it also makes me curious.
Why did neither accounting nor the contractor care enough to contact me?
Here’s the other thing to note.
My core emotion was shame.
I was embarrassed. I felt bad. I apologized.
But as I reviewed what I had written here, I can also see I was a little defensive.
Bad collections don’t just delay cash. They create a worse customer experience at exactly the moment you’re asking someone for money.
By the time I paid, the value I had received was long past.
My last experience with this provider wasn’t the service.
It was figuring out what I owed, why I owed it, and how to pay it.
Experience is created. And at the core of a good experience is making the “cash register” simple.
Low friction.
This Happens All the Time
We see it frequently:
Invoices not sent.
Collections not attempted.
No process.
No consistency.
Customers disputing.
Customers not returning.
Customers speaking poorly about the business because their last memory was a late request for payment.
The result?
Write-offs. Working capital deficits. Cash flow issues. Lost revenue. Lower profit. Poor customer experiences.
Some surprisingly common cash flow problems can be fixed quickly.
Obviously, this isn’t always true.
Years without financial strategy or cash flow management can create a large hole to dig out of.
But a lot of simple tricks are missed.
And for too long, too many financial leaders neglected to care enough because money was cheap.
Now that it isn’t, they’re coming around.
Instead of chasing the next loan, they’re stepping into the business and helping each function make a difference.
And that brings me to the next part of this series.
Working Capital Is a Team Sport
We said inventory matters.
But does your Chief Operating Officer know how inventory hits cash flow?
We said collections matter.
But does your receivables clerk or customer experience team actually understand why?
We said payment terms matter.
But does your sales team understand how dramatically those terms can change the economics of their wins and deals?
It’s funny because in the Academy I made an off-the-cuff comment about root causes and symptoms. Many of the challenges leaders describe at clients are actually symptoms of cash flow challenges.
A Chief Marketing Officer gave me formal feedback afterward and asked:
“Can you walk us through what you meant by that? I don’t understand how cash flow impacts my area of the business.”
Yikes.
But good on them for admitting it.
Every CFO they’ve worked with missed an opportunity to teach it.
But I will.
Next article.
Working Capital Is Cool continues with:
Working Capital Is Cool Again: Why liquidity matters again.
Working Capital Is a Team Sport: CFOs who coach leaders on cash are true leaders.
Cash Flow Magic: The easy fixes that can make a major difference.
Money isn’t cheap anymore.
It’s time we remembered how much working capital matters.