Working capital management explained: how to improve liquidity and cash flow

Working capital management helps large enterprises maintain cash visibility, ensure accurate forecasting, and optimise liquidity. 

The corporate treasury department is responsible for working capital management.

Key objectives of working capital management

1. Liquidity management: Ensure a company can meet critical short-term debts and operational expenses, like payroll and supplier payments.

2. Asset optimisation: Balance inventory levels and cash reserves so unused capital is either earning yield or funding growth.

3. Process improvement: Streamline the Cash Conversion Cycle (CCC) to convert investments in inventory back into cash through sales on time.

4. Risk mitigation: Protect the organisation from external shocks by maintaining an efficient liquidity buffer.

The goal is to ensure the company meets its daily operational obligations while maximising both efficiency and profitability. That includes managing current assets, making payroll, and paying out vendors and suppliers.

Key metrics in treasury

• Cash Conversion cycle (CCC) is a measure of a company’s operational efficiency and overall management. It traces the cash cycle and calculates how long it takes a business to sell inventory, collect receivables, and pay bills (CCC = DSO + funds in transit−DPO).  

• Processing/settlement time is the time it takes for a transaction to clear and become usable cash.

• Days Sales Outstanding (DSO) measures the time between a sale and the collection of the payment. A short DSO shows a business moves money efficiently and gets fast access to funds for reinvestment or other activities.

• Days Payables Outstanding (DPO) is used to indicate how cash outflows are managed by a business by calculating the average time in days it takes a business to pay bills and invoices. DPO is calculated on a quarterly or annual basis. A high DPO can free up opportunities for short-term investments. It can also show an inability to pay.

Money is often tied up across borders and assets for large businesses. Treasurers distinguish between different types of working capital. 

Types of working capital:

• Net Working Capital (NWC): The NWC is the gross working capital. It’s the difference between all current assets and all current liabilities. 

• Operating Working Capital (OWC): OWC is a more focused metric that excludes interest-bearing debt and excess cash. It focuses purely on the working capital that powers operations (Accounts Receivable + Inventory - Accounts Payable).

• Trapped working capital: Often, data silos make it impossible to see the NWC position in real time. Liquidity on the books that isn't available for use is called trapped cash.

As the treasury landscape grows more complex, the challenges of traditional working capital strategies grow. According to our 2026 report with Boston Consulting Group (BCG), the average enterprise now manages 40+ bank accounts and 12+ payment providers.

Tools and processes aren’t keeping up. According to the same report, 48% of CFOs struggle with liquidity visibility. Data and assets are spread across different portals and operations spanning multiple regions with fragmented banking partners, and treasurers often can’t manage the full money flow from pay-in to payout. 

The speed of money movement is also a challenge. In an evolving economic landscape, money has to move with the same velocity as the interactions it powers. Customers, suppliers, and employees expect money to move in real time. 

CFO respondents highlight this shift and see the efficiency and speed of payments as the second most relevant challenge in corporate treasury today.

Challenges in traditional corporate treasury

• Provider fragmentation obscures visibility: Global money flows are complex and fragmented across multiple systems, geographies, and providers. As a result, visibility can be limited, making accurate forecasting difficult. As a result, 1 in 4 enterprises struggle to optimise liquidity and working capital.

• Outdated technology hinders real-time treasury: Legacy integrations still depend on batch processing and custom host-to-host (H2H) connections. The quality, latency, and reliability of these underlying bank integrations impact real-time visibility. While the technology for real-time treasury is mature, the complexity and risk of migrating core platforms to APIs often delay adoption. 

• Manual tasks distract from higher value work: Treasurers rely on manual processes to manage fragmentation and complexity, placing a significant drain on human capital across finance. Treasury teams spend 10% of their time visualising accounts, 13% managing bank relationships, and more than 20% on handling pay-ins and payouts. 

  Foundational tasks take a substantial amount of effort, leaving both CFOs and treasurers without enough time to focus on high-value activities such as risk management, capital allocation, and strategic planning.

There are hidden costs connected to the complexity and fragmentation of corporate treasury. When capital is trapped across multiple financial institutions and financial tools, it can’t be used across the business. 

To increase cash flow and optimise working capital, enterprises need visibility into and control over the full money lifecycle. They need to align pay-ins from customers with payouts to suppliers, partners, and payroll across their operations.

New financial technology is expanding what’s possible, letting corporate treasurers move money faster and more precisely. 

Innovations that impact treasury

1. Real-time payments and new payment rails: Real-Time Payment Rails (like RTP and SEPA Instant) allow for immediate settlement, reducing float time where money is stuck in limbo. They offer greater flexibility and faster cross-border movement of funds as account-to-account payment flows.

2. Multi-currency accounts, virtual accounts, and virtual cards: These tools give treasurers and CFOs a single source of truth. Treasurers can centralise funds virtually from fewer accounts to improve working capital efficiency and provide real-time visibility and control. Cash outflows can then be accelerated or delayed strategically. 

3. Real-time connectivity: API connections that facilitate deep integrations into Enterprise Resource Planning (ERP) and Treasury Management Systems (TMS) give end-to-end connectivity visibility across accounts and cash flows.

4. Agentic and AI-enabled treasury flows: AI can analyse transaction, ERP, and business data and uncover patterns like seasonality or planned investments. It can then generate precise forecasts for real-time liquidity management.

   AI-driven workflows can reduce manual work like reconciling accounts, categorising transactions, handling exceptions, and providing predictive reporting.

Making changes in treasury processes  often requires a coordinated effort. Shifting a cash management mandate from one bank to another, for example, can be a multi-year process.

This prospect can be intimidating for even the most tenured financial leader. A good place to start is connecting your tools and infrastructure together via APIs so you can understand where money is at any point in time. 

A broad transformation requires optimising the number of banking partners, financial institutions, and fintech companies.

1. Consolidate the financial stack

88% of treasury leaders say they’d like to consolidate financial providers. Bringing inflows and outflows onto a single platform helps streamline payment requirements and settlement times. Global cash positions become visible in a single dashboard, and treasury teams can move funds more strategically.

2. Invest in an API-led infrastructure with AI in the workflow

Technology facilitates modern treasury. Modern treasury technology can maximise efficiency by replacing some human-in-the-loop delays with Agentic AI workflows. This will increase efficiency, automate straightforward decisions, and flag edge cases.

• Smart settlement and batching: Instead of fixed intervals, AI determines the optimal time to batch payments based on cost, speed, and current liquidity levels

• Predictive liquidity and funding: AI models analyse historical patterns to predict exactly how much funding will be needed over the next 24–72 hours, rather than maintaining a cash buffer at all times

• Real-time yield management: Excess funds are automatically swept into high-yield instruments or overnight deposits. For an enterprise with significant balances, turning 0% operating cash into yield can contribute millions.

3. Upskill your treasury team

Setting up the right technology is only half the equation. Treasurers who work with this technology require a different skillset.  Manual tasks currently consume a lot of a treasurer’s time. If tasks like account visualisation are automated, the team's focus can shift to high-value activities like capital allocation and strategic risk management.

Modern working capital management rests on velocity and visibility. For UK enterprises managing sterling alongside euro and dollar flows, a unified treasury model brings both together. The appetite is already there, with 74% of survey respondents in the Adyen and BCG report saying they are likely to use an integrated money management solution that covers the entire cash flow cycle. Treasury teams can build a unified model by:

1. Consolidating financial providers to remove data silos and trapped cash

2. Adopting API-first integrations for real-time visibility of UK and international bank accounts

3. Using AI for predictive forecasting to reduce idle cash buffers

4. Synchronising pay-ins and payouts on a single platform

5. Automating manual reconciliation so finance teams can focus on strategic work, rather than the 10% of their time currently spent visualising accounts and 13% spent managing bank relationships

Treasurers also expect banks to support 16 percentage points fewer treasury activities than the roughly 40% they cover today, as more teams turn to purpose-built providers. With a unified model in place, UK enterprises can turn working capital from a stagnant asset into a dynamic tool for growth at home and abroad.

See the full findings in our latest report with created in collaboration with BCG, How treasury innovation drives better business outcomes.