Definition
Working capital policy defines targets for receivables, payables, and inventory to balance growth with cash stability.
How to use it
- Set DSO/DPO targets by segment and enforce them with owners.
- Tie policy to forecast accuracy so cash plans remain reliable.
Common mistakes
- Setting targets without changing billing and collections processes.
- Optimizing DPO without considering supplier risk.
Measured as
Measure Working Capital Policy with the same date, unit basis, and accounting or policy definitions used in the rest of your model.
Misused when
- Setting targets without changing billing and collections processes.
- Optimizing DPO without considering supplier risk.
Operator takeaway
- Set DSO/DPO targets by segment and enforce them with owners.
- Tie policy to forecast accuracy so cash plans remain reliable.
- Tie Working Capital Policy to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Cash conversion cycle: turn working capital into runway if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Working Capital Policy belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
Guides
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.