How to improve cash flow: a practical UK guide

Cash and cost are not the same problem

The scale of the opportunity is bigger than most finance teams assume: an estimated $1.7 trillion of excess working capital - 35% of gross working capital and 11% of aggregate revenue - sits trapped inside the top 1,000 US non-financial companies (The Hackett Group, 2025) ^[1]. Top-quartile companies free 10-20% of gross working capital through better DSO, DIO and DPO management (PwC) ^{[2, 3]}, which is the gap most UK mid-market businesses have not closed.

A cost programme lowers the number on the invoice. A cash programme changes when the number moves. Both matter, but they are solved with different levers - and confusing them is the most common reason cash initiatives stall.

The five cash levers that actually move

• Payment terms - align them to category norms, not historical accident
• Working capital - inventory cover, WIP and receivables discipline
• Spend control - stop the leak before optimising the flow
• Contract structure - avoid upfront payments where staged is standard
• Supplier financing - dynamic discounting and supply chain finance where it fits

Payment terms without breaking suppliers

The lazy version of this is a blanket 30-to-60 day extension. It works once, then suppliers price it back in at the next renewal. The better version is category-aware: extend where the market supports it, hold where you rely on supplier flexibility, and offer early-pay discounts where cash is cheaper than the discount.

Working capital: inventory is usually the biggest lever

For product businesses, inventory cover is almost always the largest single cash lever. A 10-day reduction in cover on a business carrying £15m of stock releases roughly £4m of cash. That comes from SKU rationalisation, safety stock recalculation, and honest lead-time data - not from squeezing suppliers.

• Retire tail SKUs contributing under 5% of revenue
• Recalculate safety stock on real, not contracted, lead times
• Move slow movers to make-to-order where feasible
• Tighten forecast horizon on volatile categories

Stop the leak first

Cash flow improvement without spend discipline is refilling a leaking bucket. Approval thresholds, PO discipline and category ownership have to come alongside the cash work, or the cash you release in Q1 walks back out in Q3.

Late payment is a UK-specific drag on cash

Payment terms discipline is not just an internal lever - it works both ways. Average payment delays to UK SMEs run at 52 days, with SMEs losing around £22,000 a year to overdue invoices (Novuna, 2025) ^[4]. Any cash flow programme that only looks at what a business pays out, and ignores what it is owed and when, is leaving cash on the table.

Supplier price increases and supplier inflation

One of the biggest cash surprises in the last few years has been suppliers pushing through blanket price increases on renewal - often citing inflation, energy or freight. Left unchallenged, those increases compound and quietly reset the cost base for years. How to respond to supplier price increases without breaking the relationship:

• Ask for the increase in writing with a cost breakdown - vague inflation notes are usually 3-5% overstated
• Benchmark against category norms - not every input has moved the same way
• Counter with volume, term length or payment terms rather than accepting the headline number
• Where a re-tender is credible, use it - even a limited market test typically halves the ask
• Formalise annual index-linked reviews so future increases follow a rule, not a request

A realistic cash improvement plan

• Weeks 1-4: cash diagnostic - DPO, DIO, DSO by category and BU
• Weeks 4-12: payment terms reset on tier-two and tier-three suppliers
• Weeks 8-16: inventory cover reduction on the top 20 SKUs
• Months 4-9: working capital governance and cadence

Where this connects

Cash work overlaps with our cost reduction and supply chain optimisation services, and often runs in parallel with a 100 day cost plan.