How to Improve Company Working Capital: 6 Practical Steps for the New Year 

Discover the cash-focused KPIs, operational strategies and working capital financial tools that can help your business actually deliver on its goals this year.

For many small to midsize businesses, the new year offers a chance to reset priorities, such as reducing financial risk and fueling growth. A common thread connects these goals: cash. Strong working capital management is one of the most effective ways businesses can unlock opportunities and build resilience.

According to Visa’s 2024–2025 Growth Corporates Working Capital Index, businesses prioritizing working capital strategy, often through improved data and insights, can achieve up to $11 million in bottom-line benefits through reduced interest, lower inventory costs and supplier discounts. 

If improving cash flow is a priority for your business in the new year, here are practical working capital management strategies and tools to consider.

1. Refocus your working capital KPIs

While many companies concentrate on EBITDA as a performance indicator, McKinsey & Co. recommends shifting to cash-oriented metrics. For example, days sales outstanding (DSO), average payment term length, and the percentage of overdue invoices are more effective at tracking changes in working capital and anticipating shortages.

 2. Set realistic, data-driven targets

Rather than setting arbitrary targets based on instinct or past performance, ensure these numbers are grounded in your current operating realities and cash flow position. 

Start by examining your cash conversion cycle (CCC) to identify where change is possible. For example, if high DSO is depleting available cash, determine how often buyers make late payments, set a realistic goal based on your industry average and use levers such as early payment incentives.  Optimize invoicing processes

Automating invoicing and payment reminders, as well as providing multiple payment options through online portals, can encourage faster payments from buyers and improve working capital. 

Early payment programs, which incentivize buyers to pay faster in exchange for a discount, are a low-barrier way to optimize accounts receivable. Use C2FO Early Pay™ to request early payments directly from your buyers and free up cash on demand.

 3. Negotiate better payment terms 

Paying your suppliers early in exchange for a discount can further help lower costs and improve working capital. Perform a cost-benefit analysis before approaching suppliers to clarify whether taking a discount or holding cash until the invoice maturity date will strengthen your position more.

If paying invoices early will strain your cash flow, focus instead on extending payment terms. Ensure the terms you negotiate are still fair and sustainable for your suppliers, who also need steady cash flow to operate and fulfill your orders on time. 

 4. Consider just-in-time inventory management

Order materials and inventory only when needed to reduce how long capital is tied up in inventory and improve cash flow. You can use dedicated inventory management platforms and analytics to predict demand accurately and avoid potential delays. It also helps to diversify your supplier base and prioritize nearby vendors (nearshoring), which can reduce lead times and shipping concerns.

 5. Leverage savings without compromising growth

Ahead of the new year, complete a line-item budget review with department heads to find areas where the business spends too much or costs increase too quickly. 

A smarter way to improve working capital in the year ahead

Improving your business’s working capital is key to withstanding challenges and enabling growth for the year ahead and beyond. That requires disciplined improvements in invoicing, collections and supplier terms, all backed by valuable working capital insights and reporting.

C2FO helps businesses put these strategies into practice. Early Pay provides flexible ways to access funds when you need them.

If improving cash flow is on your agenda this year, start by unlocking faster access to your own capital. Explore how C2FO Early Pay can help your business accelerate payments and make an immediate impact on your business goals.

FAQ

What are realistic working capital goals for 2026?

With a 2026 economic outlook marked by potential interest rate cuts and inflation concerns, businesses should focus on working capital goals that strengthen liquidity and improve cash predictability. These goals should help your business:

• Tighten the cash conversion cycle (CCC)
• Reduce days sales outstanding (DSO) and improve on-time payments
• Establish more AR visibility through analytics tools

Start with your current metrics, compare them with industry benchmarks and set realistic targets that consider your actual cash position and buyer payment behaviors. 

Which working capital KPIs should CFOs track besides EBITDA?

Besides EBITDA, CFOs should monitor working capital metrics such as:

• Cash conversion cycle (CCC)
• Days sales outstanding (DSO)
• Days payable outstanding (DPO)
• Days inventory outstanding (DIO)
• Operating cash flow (OCF)
• Free cash flow (FCF)
• Percentage of overdue invoices

These cash-focused KPIs provide a more granular, real-time view of liquidity and working capital performance than EBITDA alone. 

How can AR aging reports and collections strategies improve working capital?

AR aging reports and collections strategies improve working capital by giving you earlier visibility into risks and helping you turn outstanding invoices into cash faster. 

AR aging reports show which invoices are overdue or trending late, allowing your team to prioritize high-risk accounts and address issues before they affect cash flow. Accounts receivable collections strategies, such as automated reminders and timely outreach, help accelerate payments and reduce the amount of capital tied up in receivables.

What role do early payment programs play in working capital management?

Early payment programs support working capital management by accelerating the movement of cash across the supply chain.

For suppliers, they provide faster access to cash from approved invoices, improving liquidity without adding debt. Fintech-led programs, such as C2FO Early Pay™, give suppliers flexibility over which invoices to accelerate and at what cost. For buyers, early payment programs help strengthen supplier relationships, stabilize the supply chain and capture discounts that lower the cost of goods sold.