Working capital optimization as a source of strategic liquidity: a CFO playbook

August 29, 2026 · 5 min · Free, with full transcript

Most CFOs sit on a significant cash reserve they have not yet recognized: the working capital trapped in their own operations. This playbook shows how to extract it systematically, without touching the credit facility or the dividend.

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Welcome to the Leaders Insights podcast.

Today's episode, working capital optimization as a source of strategic liquidity, a CFO playbook.

Every CFO I talk to says they need more liquidity.

You're telling me most of them are sitting on it and refuse to look.

That sounds like a cheap shot.

It's not a cheap shot.

It's an audit finding.

The average mid-market company has 12 to 18 percent of its annual revenue frozen in working

capital.

The cash tied up in inventory, unpaid invoices, and money they've already paid suppliers.

On a 500 million euros revenue business, that's 60-year euros to 90 million euros sitting there

doing nothing.

Come on, companies aren't stupid.

If that cash were extractable, they'd have taken it.

They're not stupid.

They're organized against themselves.

Individuals owns the payment terms with customers.

Procurement owns terms with suppliers.

Operations owns inventory.

Nobody owns the cash conversion cycle.

The number of days between paying for something and getting paid for it.

So everyone optimizes their piece, and the money stays trapped.

I've watched a 2 billion euros industrial group discover 140 million euros this way.

It had been there for years.

Fine.

But when a CFO wants cash fast, the reflex is to draw on the credit line or squeeze suppliers

into paying you at 90 days.

Why is that wrong?

The credit line is borrowing at 5-6% to solve a problem you created for free.

And squeezing suppliers to 90 days, everyone's favorite trick, is a loan you force your

smaller vendors to give you.

It works right up until your critical supplier goes under, or quietly raises prices 4% to

cover the financing.

You didn't find cash, you moved a cost off your balance sheet and onto your P&L where

it hides.

So where's the real money?

Give me the order of operations.

Start with receivables.

The invoice's customers haven't paid.

Not by chasing harder, by billing correctly.

At one distribution client, 30% of invoices had an error that gave the customer a legitimate

reason to sit on payment.

Wrong purchase order number, wrong price.

Fix the invoice and days sales outstanding.

The average time to get paid dropped from 58 to 44.

That was 22 million euros.

No phone calls.

That's almost embarrassing.

You're saying billing hygiene beats a collections department.

A collections team fighting bad invoices is two people arguing about a document nobody

trusts.

Fix the document first, then inventory.

Most companies carry safety stock based on a spreadsheet somebody built in 2019 and nobody's

touched since.

Koopa and similar spend management vendors publish numbers here, treat them as directional

since they're selling the fix.

But 20 to 30% of safety stock is usually pure fear, not demand.

Isn't that dangerous?

Cut inventory and one hiccup and you can't ship.

That's the reflex, and it's why the fear stock never leaves.

You don't cut across the board.

You segment, fast movers keep buffer, the slow tail gets thinned.

A consumer goods company I know froze 18 million euros in inventory of products that sold four

units a month.

Four.

They were insuring against a stock out nobody would notice.

What's the mistake even the disciplined CFOs make?

They run a working capital blitz once a year, extract the cash, declare victory, and it

all creeps back in nine months because no incentive changed.

If your sales team's bonus rewards revenue and ignores whether the customer ever pays,

you'll be back next year.

Put day sales outstanding in the sales comp plan and watch how fast terms tighten.

You're describing a governance problem dressed up as a finance problem.

That's exactly the line.

The cash is trapped by the org chart, not the market, which is oddly good news.

It's the one liquidity source that doesn't require a banker's permission or a single

board vote.

Give me the one thing a CFO does Monday morning.

Pull your last 200 unpaid invoices and check how many have an error the customer

can hide behind.

If it's more than one in 10, and it usually is, you've found your first few million

before you've touched a supplier, a credit line, or the dividend.

Start there because it's free and nobody has to like you for it.

That's a wrap.

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