How to structure working capital before your growth quarter

The mistake is timing, not size

A working capital enhancement takes three to five weeks from application to enhanced limit. If you apply when the squeeze has already started, you spend that period funding growth from your own pocket — usually by delaying supplier payments, which is the most expensive credit available to any business.

The trigger for an enhancement is not a cash shortage. It is a confirmed order book that will lengthen your cycle.

Compute your actual cycle

Lenders assess the cash conversion cycle: debtor days plus inventory days minus creditor days. Most businesses quote a number from memory that is materially wrong, usually optimistic by two weeks.

Pull twelve months of data and compute it properly. That number, multiplied by daily cost of sales, is your genuine funding requirement.

• Debtor days = (Receivables ÷ Annual sales) × 365
• Inventory days = (Inventory ÷ COGS) × 365
• Creditor days = (Payables ÷ Purchases) × 365
• Requirement = (Debtor + Inventory − Creditor) × daily COGS

Fix the cycle before financing it

Financing a bad cycle is expensive forever. Before applying, check whether ten days can be removed by invoicing on dispatch instead of month-end, tightening credit terms for your slowest three customers, or negotiating supplier terms in exchange for on-time payment.

In our experience most manufacturers can remove eight to fifteen days without losing a single customer. That reduces the facility you need and the interest you pay on it, permanently.

Present it properly

Bankers approve files, not businesses. A one-page cycle analysis, the computed MPBF working, twelve months of stock statements and a stated end use will move a file faster than a relationship visit.