Business Success: Working Capital Mastery

Working Capital Mastery: Stock, Suppliers and Cash Traps

Article #5 FOCUS:

How to unlock the cash already buried inside your business

Many business owners say the same thing: “We’re profitable, but cash still feels tight.”

Sales look strong. Profit is positive. Yet the bank account feels under pressure. The problem is often not profit. The problem is working capital.

Working capital is the money tied up in; stock and inventory, work in progress (WIP), unpaid customer invoices, supplier payment terms. When these areas are inefficient, cash becomes trapped.

Your business may be producing gold.
But the gold is still underground.

Working capital mastery is about extracting that gold faster.

Key Takeaways

• Profit does not automatically mean cash in the bank.
• Cash often becomes trapped in stock, unpaid invoices and unfinished work.
• Australian small businesses wait about 23.9 days on average to be paid after issuing an invoice.
• Even small improvements in debtor collection or stock levels can release significant cash.
• Negotiating supplier payment terms can improve liquidity without increasing debt.
• Working capital improvements strengthen financial stability and reduce stress.

What Is Working Capital?

Working capital measures how efficiently your business converts activity into cash.

It focuses on four key areas:

1. Inventory (stock)
2. Work in progress (WIP)
3. Accounts receivable (debtors)
4. Accounts payable (supplier terms)

Each area controls how long cash stays tied up.

The longer cash is locked in the system, the tighter your bank balance becomes.

Government guidance emphasises that managing cash flow, collecting payments faster, and keeping accurate debtor records are essential for business stability.
You can see this reflected in the ATO’s guidance on managing records and cash flow.

Improving these systems helps businesses know:

• who owes them money
• what they owe suppliers
• when payments are due

That clarity alone can significantly improve financial control.

The Hidden Cash Trap: Inventory

Inventory is one of the most common places where cash gets stuck.

Every product sitting on a shelf represents money already spent.

Until that product sells, the cash stays buried.

Business.gov.au explains that inventory management helps businesses track what is selling and avoid costly mistakes.

Without careful monitoring, stock can quietly drain working capital.

Warning signs inventory is tying up cash

• Large volumes of slow-moving stock
• Frequent discounting to clear shelves
• Storage costs increasing
• Cash shortages despite strong sales

This is like mining gold but leaving ore piles untouched.

Practical ways to improve inventory efficiency

Focus on right-sizing inventory, not simply reducing it.

Consider:

• Reviewing stock regularly – Know what sells quickly and what does not.
• Ordering smaller quantities more often – This reduces the amount of cash locked in storage.
• Clearing slow-moving products – Sometimes freeing cash is more valuable than holding old stock.
• Using better inventory tracking systems – These provide clearer insights into purchasing decisions.

The goal is simple: keep cash moving through the business.

Work In Progress: The Cash You Haven’t Invoiced Yet

Service and project businesses often face a different problem.

Cash becomes trapped in work in progress (WIP).

WIP refers to work that has been completed but not yet invoiced.

Many businesses wait until a project finishes before sending an invoice.

That delay slows down cash flow dramatically.

Imagine mining gold but waiting until the entire mine is complete before selling any ore.

Common signs WIP is hurting cash flow

• Projects run for weeks before invoicing
• Progress claims are delayed
• Invoices are sent well after work is completed
• Cash flow fluctuates despite steady work

Ways to improve WIP cash flow

Practical improvements include:

• Progress billing – Invoice at milestones instead of project completion.
• Shorter billing cycles – Weekly or fortnightly billing reduces delays.
• Invoice immediately when work is completed – Administrative delays often create unnecessary cash gaps.

These changes shorten the time between doing work and receiving payment.

Debtor Days: The Biggest Cash Bottleneck

The speed at which customers pay is one of the biggest drivers of cash flow.

Research from Xero Small Business Insights shows that Australian small businesses waited an average of 23.9 days to be paid after issuing an invoice in the December 2025 quarter.

Even with improving payment speeds, many businesses still experience late payments.

The Australian Government introduced the Payment Times Reporting Scheme to improve transparency around how large businesses pay their small suppliers.

The scheme aims to encourage better payment practices and improve cash flow across the small business sector.

Signs debtor days are too high

• Customers frequently pay after the due date
• Large amounts sitting in accounts receivable
• Constant follow-ups required for payment
• Cash shortages despite strong sales

Practical ways to improve payment speed

Business.gov.au recommends several approaches to collect cash faster:

These include:

• Sending invoices quickly – Delays in invoicing automatically delay payment.
• Setting clear payment terms – Customers should understand payment expectations upfront.
• Offering digital payment options – Online payment systems can reduce payment delays.
• Requesting deposits – Upfront payments reduce risk and improve liquidity.

Even reducing payment times by a few days can release significant cash.

Supplier Terms: An Overlooked Cash Lever

Most businesses negotiate prices with suppliers.

Far fewer negotiate payment terms.

Yet payment terms strongly influence working capital.

If customers pay you in 30 days but suppliers require payment in 7 days, your business must fund the difference.

Negotiating supplier terms can help align cash inflows and outflows.

Business.gov.au explains that clear payment terms are an important part of business agreements and help manage payment expectations.

Ways to improve supplier terms

Consider:

• negotiating 30-day terms where possible
• building strong supplier relationships
• consolidating purchases for better leverage
• reviewing contracts annually

Longer supplier terms do not mean paying late.

They mean creating sustainable, agreed payment schedules.

Why Profit Does Not Equal Cash

One of the most important lessons in business finance is this:

Profit and cash are not the same thing.

Profit measures financial performance.

Cash measures the ability to operate.

A business can show healthy profits while struggling to pay wages, tax or suppliers.

This happens when working capital traps cash.

Understanding this difference helps business owners make better decisions.

The Working Capital Mindset

Think like a gold miner.

Smart miners do not simply dig deeper.

They improve how quickly gold moves through the operation.

Business owners should ask similar questions:

• Where is cash trapped in my business?
• How long does it stay there?
• What processes slow down the flow?

Small operational improvements often unlock large financial benefits.

Five Quick Wins to Release Cash

If cash feels tight, start with these simple actions.

1. Review overdue invoices weekly: Following up promptly often triggers quick payment.

2. Invoice immediately: Send invoices as soon as work is completed.

3. Review inventory levels: Identify slow-moving stock and adjust purchasing.

4. Introduce deposits for larger projects: Deposits reduce cash flow risk.

5. Review supplier terms: Better terms can improve liquidity without new borrowing.

Many businesses discover that these small changes release thousands of dollars.

Turning Financial Stress Into Financial Control

Businesses that manage working capital well experience major advantages.

They typically have:

• fewer cash shortages
• less reliance on loans
• more predictable tax obligations
• stronger financial resilience

As the Australian Small Business and Family Enterprise Ombudsman has stated:

“Cash flow is the oxygen of enterprise.”

Without healthy cash flow, even profitable businesses can struggle.

The Gold Already Inside Your Business

This article forms part of the From Groundwork to Gold¹ business success series.

This first of four stages focuses on building financial clarity and control.

Without strong foundations, scaling a business becomes risky.

Many business owners focus heavily on profit and loss reports.

But some of the biggest opportunities sit in the balance sheet.

Inventory levels.
Debtor balances.
Supplier terms.

Improving these areas can unlock cash that already exists within the business.

It is like discovering a new gold seam inside an old mine.

You do not need to dig deeper.

You simply need to extract the gold more efficiently.

Ready to Unlock the Cash in Your Business?

If your business is profitable but cash still feels tight, working capital may be the missing piece.

Improving stock management, debtor collection and supplier terms can release cash without borrowing.

At DJ Grigg Financial, we help business owners uncover hidden cash traps and build stronger financial systems.

The result is greater clarity, stronger cash flow and less financial stress.

Find out more about DJ Grigg Financial’s Business Transformation Journey today and start unlocking the cash already buried in your business.

1. Business Success Series: From Groundwork to Gold
   Mini-Series 1: Lay the Foundations – Financial Control Without the Stress ↩︎