Reduce Business Borrowing by improving your Working Capital Cycle
By Sue Hirst, Co-Founder, CFO On Call
Before you ask your bank for more money, it is worth asking how much cash you could release from within your business. Unpaid invoices, excess stock and completed work waiting to be billed can absorb substantial amounts of money. Improving how you manage them can reduce your borrowing needs and give you more control over cash flow.
With borrowing costs under pressure and business owners concerned about the security supporting their loans, now is a good time to get your working capital cycle sorted.
There is another reason to act: the ATO has announced it will stop accepting credit card payments after 30 November 2026. If you use a credit card to bridge the gap between customer receipts and tax payments, you need to plan for that change.
What is your working capital cycle
Your working capital cycle is the time between paying for the goods, labour and other inputs needed to make a sale and receiving payment from your customer. The longer that gap, the more money you need to fund day-to-day operations.
For a business selling stock, the cash conversion cycle is commonly measured as stock days plus customer payment days minus supplier payment days. For a service business, the same principle applies to wages and expenses incurred while work is being completed, approved, invoiced and paid.
For example, you might hold stock for 60 days, wait another 45 days for customers to pay and pay suppliers after 30 days. That leaves a 75-day funding gap. Shortening that gap can free up cash already committed to running your business.
A profitable business can still run short of cash
A sale can appear in your profit report well before the money reaches your bank account. Meanwhile, wages, rent, suppliers and tax still need to be paid. Growth can widen the gap as you fund more stock or larger projects before customers pay.
An overdraft can help fund that timing difference. But if slow invoicing, overdue accounts or unnecessary stock are driving the shortfall, increasing the overdraft leaves the underlying problem unresolved.
Small improvements can release substantial cash
Consider a business with annual credit sales of $3.65 million, averaging $10,000 a day. Reducing average customer payment time from 50 days to 40 days could release approximately $100,000 from receivables, assuming sales remain steady.
If that money reduces an overdraft carrying an illustrative interest rate of 10%, it could save around $10,000 a year in interest while the lower borrowing balance is maintained. The $100,000 is cash released from working capital, rather than additional profit. Actual results depend on sales patterns, customer behaviour and implementation costs.
Where to start
Invoice sooner. Send accurate invoices as soon as goods are delivered or a billing milestone is reached. Confirm purchase orders and approval requirements early so administrative problems do not delay payment.
Manage customer payments actively. Agree clear terms before work starts, review overdue accounts weekly and resolve disputes promptly. Where commercially appropriate, use deposits or progress payments to share the funding burden with customers.
Review stock and work in progress. Identify slow-moving stock, excessive buying and jobs that are taking too long to complete or bill. Set purchasing levels around realistic demand and track the cash committed to unfinished work.
Agree workable supplier terms. Negotiate payment timing that better matches customer receipts, and pay within the agreed terms. Compare any benefit from early-payment discounts with the cost of using cash sooner.
Forecast the next 13 weeks. Map expected receipts against wages, suppliers, tax and loan repayments. Update the forecast weekly so you can address a shortfall before it becomes urgent.
Turn the numbers into an action plan
Start by measuring customer payment days, stock days and supplier payment days, together with unbilled work. Set realistic targets, calculate the potential cash benefit and give someone responsibility for each action. Review progress regularly.
Borrowing may still be appropriate for growth, equipment or seasonal needs. Understanding your working capital cycle helps you establish how much funding you actually need and explain that requirement more clearly to your lender.
How CFO On Call can help
Our Business Financial Health Check helps identify the financial issues holding your business back. Where further analysis is needed, a Deep Dive and our 7 Key Numbers calculation help quantify potential improvements in profit and cash flow.
That provides the basis for an offer of fixed monthly fee CFO services to help deliver the agreed improvements, with a clearer view of the potential benefit and the cost of support.
If cash flow is tight, contact CFO On Call to explore how much cash your business could release through better working capital management—and how that could reduce your need to borrow.
Source: Australian Taxation Office, Changes to credit card payments, 1 October 2026. https://www.ato.gov.au/businesses-and-organisations/small-business-newsroom/changes-to-credit-card-payments
