7 Essential Working Capital Strategies for Your Business
In simple terms, working capital represents the funds you have available to run day-to-day operations. The strength of your working capital position influences your ability to stay flexible, meet financial obligations, and invest in growth.
In this article, you’ll learn seven practical working capital strategies to improve your position and create more financial agility. We’ll walk through tactics for managing payables and receivables, optimizing your cash conversion cycle, right-sizing inventory, lowering costs, and using short-term financing strategically.
7 Strategies to Enhance Your Working Capital Position
Working capital is equal to current assets minus current liabilities. A company’s current assets include:
Cash on hand
Short-term investments
Inventory
Accounts receivable
Current liabilities include:
Accounts payable
Short-term debt
Unearned revenue
Accrued expenses
For effective working capital management, use the strategies below to help you balance your assets and liabilities for optimal efficiency and liquidity.
1. Take Advantage of Early Payment Discounts
Reducing your accounts payable is one way to give your working capital a boost. There are, of course, necessary expenses you can’t avoid. However, you may be able to lower the cost by taking advantage of an early payment discount.
Some suppliers, especially those that extend net terms, will offer a discount if you pay an invoice before the due date. Usually, you’ll need to pay within a certain time frame for it to be considered early — such as 20 days early on a net-30 invoice.
If you don’t have the cash flow to pay an invoice early, consider the opportunity cost of using a finance facility, such as a business line of credit, to cover the expense.
2. Reduce Days Sales Outstanding With BNPL
Working capital and cash flow are separate financial metrics that are closely tied together. If your company is flush with inventory and accounts receivable, you might have positive working capital, which is great. That means you’re able to cover your short-term obligations.
That’s only part of the story, though. You also need to look at your cash conversion cycle. Is money being tied up in inventory and unpaid invoices longer than it should be? According to a recent article from MDM, “Excess working capital is idle money. … Too much money tied up in inventory or unpaid invoices limits agility, slows response to shifting market conditions and stalls opportunities.”
One way to help speed up the cash conversion cycle is to lower your days sales outstanding (DSO). You might feel stuck between following the industry standard of offering net terms and needing to speed up customer payments.
B2B buy now, pay later (BNPL) is a win-win solution. When you partner with a BNPL provider like Backd, you can offer 30-, 45-, 60-, or 90-day net terms or even up to 24-month installment plans to your customers while you get the payment upfront.
3. Negotiate Favorable Payment Terms
This is another working capital strategy that’s tied to the cash conversion cycle — specifically the days payable outstanding (DPO) metric. DPO reveals how long it takes your company to pay its suppliers.
A high DPO generally means you are holding onto cash longer and hopefully using it to invest in your business and cover operational expenses. However, it may also be a signal that bills aren’t being paid on time.
A low DPO means you pay quickly, which is positive for supplier relationships and might mean you’re benefiting from early payment discounts. It might also indicate inefficient working capital management that’s interfering with your ability to invest in growth opportunities.
As you can see, DPO is a balancing act. By negotiating favorable payment terms (e.g., pricing and due dates), you can strike a better balance between working capital efficiency and supplier relationships.
It also helps you optimize accounts payable so you can balance cash inflows and outflows. For example, you might want to spread out your payment responsibilities so they don’t all come due at the same time, which can lead to irregular cash flows that put undue strain on your finances.
4. Keep the Right Inventory Levels
Days inventory outstanding is the final piece in the cash conversion cycle. The two ends of the inventory management spectrum are the just-in-time approach and the just-in-case approach.
With just-in-time inventory management, you bring in supplies, raw materials, or products when they’re needed. It keeps you lean and avoids tying up working capital in excess inventory that’s not moving quickly enough. The downside is, you’re vulnerable to unexpected supply chain disruptions that could interrupt operations.
With just-in-case inventory management, you proactively buy stock levels to correspond with projected sales. This approach minimizes supply chain risk and allows you to meet demand spikes. The downside is, you may end up with excess working capital or be overstocked if demand projections aren’t met.
Find the right inventory balance for your business that allows you to remain agile with your working capital and keep operations humming along.
5. Take Advantage of Bulk Discounts
This working capital strategy can both lower costs and increase assets. While you don’t want to have too much working capital tied up in inventory (as we discussed above), bulk discounts can be a good cost-saving measure, especially when market conditions are volatile.
In spring 2025, many companies were looking for ways to avoid or minimize the impact from tariffs. Some bought up extra inventory before the tariff costs kicked in. Indirectly, that essentially equaled a bulk discount (and in some cases, the larger orders might have led to a direct per-unit discount as well).
6. Optimize Day-to-Day Operations and Costs
Do an audit of your day-to-day operations and expenses to look for inefficiencies that are weighing down your current liabilities or disrupting your cash conversion cycle. Think about where you can automate or streamline to avoid human errors or delays. For example:
Are there manual elements to your collection process that are increasing DSO?
Could modern payment methods and embedded finance help you get paid faster?
Are you paying for redundant or unused software and technology?
7. Use Short-Term Financing Solutions Strategically
Business lines of credit and short-term loans can be used strategically to manage working capital and cover business needs during seasonal fluctuations. Even though short-term debt is a current liability, the cash injection from the financing boosts current assets. It allows you to have the funds you need to pay bills and make investments while you wait for new sales to close or accounts receivable to come in.
Get Fast, Flexible Working Capital Financing
You have a lot of tactical options to create a strong working capital position for your business. Start by looking at your expenses and cash conversion cycle to see where you can optimize costs and processes. Then, consider using financing to help you bridge cash flow gaps or invest in growth.
Backd offers two working capital financing solutions. The Business Line of Credit ensures cash is readily available when you need it, and you only pay interest on what you withdraw. The Business Term Loan* provides upfront capital and term lengths up to 24 months.
The eligibility requirements are straightforward:
$100,000 in monthly revenue
A 650+ credit score
Established business credit
Based in the U.S. with a brick-and-mortar address
Been in business for one year
Apply now** and receive a funding offer within as little as 6 hours.***
*Loans are decisioned and funded by one of Backd's lender partner banks.
**Your application, including the amount, cost, and approval, is subject to review and is not guaranteed. Terms and conditions subject to change without prior disclosure or notice.
***Decisions and funding may take additional time and not be same-day. Additional information may be required. Time to receive funds varies based upon your financial institution's receiving schedule and operating hours.
