For nearly a decade, the cost of capital was close to zero. During this time, working capital optimization was often seen as a matter of marginal efficiency. It was treated as a back-office task with only incremental impact. That era of complacency is now definitively over.
Today’s world is one of elevated interest rates and persistent inflation. As a result, working capital has been catapulted to the forefront of corporate strategy. Unlocking cash trapped on the balance sheet is no longer a “nice to have.” It is one of the most significant sources of value a treasurer can create, directly impacting profitability and enterprise value.
The cash conversion cycle (CCC) is under immense pressure. The CCC is the time it takes to turn inventory and receivables into cash, minus the time afforded to pay suppliers. Higher borrowing costs make every day that cash is tied up more expensive. For a large company, a one-day reduction in its CCC can free up tens of millions of dollars. This new reality forces treasurers to move beyond traditional tactics. They must embrace a more sophisticated, technology-driven, and collaborative approach.
1. Dynamic Discounting
Static early payment terms like “2/10, net 30” are a relic of a less agile era. The modern approach is dynamic discounting. This strategy is far more intelligent and flexible. Using specialized platforms, buyers can offer to pay approved supplier invoices at any point before the final due date. The discount percentage is calculated on a sliding, pro-rata scale. The earlier the payment, the larger the discount.
This is a powerful proposition for any treasurer. Corporate cash reserves might otherwise earn only a modest return in a money market fund. Consider a $100,000 invoice due in 60 days. By paying on day 10, a company might capture a 1.5% discount, or $1,500. This simple act generates a risk-free return. When annualized, this return can often exceed 10-15%.
The proposition is equally compelling for suppliers, especially small to mid-sized ones. They gain immediate, predictable access to cash flow. This financing cost is often cheaper for them than traditional factoring or lending. This allows them to fund their own operations and growth. The accounts payable function is thus transformed. It moves from a cost center to a strategic tool for generating yield and strengthening the entire supply chain.
2. Accounts Receivable (AR) Monetization
Waiting 30, 60, or even 90 days for customers to pay creates a significant drag on liquidity. Companies are increasingly using sophisticated AR monetization strategies to accelerate this cycle. This goes beyond simple factoring into the realm of structured finance. The most common method is AR securitization. Here, a company pools its receivables and sells them to a special purpose vehicle (SPV). The SPV then issues asset-backed securities to institutional investors.
The cost of this financing is often much lower than traditional corporate debt. This is because the SPV is bankruptcy-remote and the investment is backed by diversified, high-quality invoices. A company can pull months of future cash flow onto its balance sheet immediately. This cash can fund an acquisition, pay down expensive debt, or manage seasonal business swings. The treasurer’s role is to assess the portfolio, balance the discount cost against the benefit of immediate cash, and manage complex investor relationships.
3. Strategic Inventory Management
Inventory is often the most challenging component of working capital. It sits at the complex intersection of supply chain operations and finance. Holding too little risks lost sales. Holding too much ties up cash and incurs high storage costs. Inflation adds another layer of complexity, as replenishment costs are constantly rising.
Treasurers now play a more active role in Sales and Operations Planning (S&OP). They bring a crucial financial lens to operational decisions. A key tool is 9-box inventory segmentation. This involves plotting every item on a matrix of sales volume versus profitability. This allows the business to clearly identify “winners” and “losers.” Capital can then be focused on the most productive assets. This data-driven approach is essential for maximizing return on invested capital in a tight financing environment.
In 2025, the crusade to shorten the cash conversion cycle is paramount. By leveraging these advanced levers, treasurers do more than just manage liquidity. They can create a powerful, internal engine for self-funding, risk reduction, and tangible value creation.