Working Capital Management in Mid-Sized Companies: More Liquidity Without Additional Financing

Many mid-sized companies generate sufficient revenue, but still regularly face liquidity bottlenecks. The reason is often not a lack of income, but insufficient working capital management. Revenue is there, but capital is tied up:

• Open customer receivables

• High inventory levels

• Unfavourable payment structures

Active working capital management helps reduce capital tied up in inventory. In many companies, it is still viewed as a purely operational task and is underestimated. Yet through better management, working capital management makes it possible to free up liquidity without taking on additional loans.

In this article, you will learn why liquidity is decisive for mid-sized companies and how working capital management can create financial flexibility.

What Is Working Capital Management? Definition and Basic Formula

Working capital is the term for operating capital and is often also referred to as net working capital in practice. The key figure provides information about a company’s short-term solvency and shows how much capital is tied up in operating business.

The Working Capital Formula and a Practical Example

Working capital is usually calculated using the following formula:

Working Capital = Current Assets - Current Liabilities

The more capital is tied up in receivables and inventories, the less liquidity is available in the short term for investments, ongoing costs or debt repayment.

Practical example:

A company has €300,000 in working capital after deducting current liabilities. The calculation looks as follows:

Position	Amount	Explanation
Receivables	€400,000	Money that customers still owe the company.
Inventories	€300,000	Goods or raw materials that are already available.
Liquid funds	€100,000	Money in bank accounts or in cash.
Current assets	€800,000	Receivables + inventories + liquid funds
Current liabilities	€500,000	Debts that must be paid in the short term.
Working Capital	€300,000	Current assets - current liabilities

Why Working Capital Management Is Decisive for Mid-Sized Companies

In many mid-sized companies, liquidity is coming under increasing pressure. Capital is tied up in receivables and inventories. This means that short-term available liquidity is missing, which can delay payments and operational decisions. The triggers are often long receivables collection periods or excess inventories, which can quickly develop into cash flow risks.

Rising Costs Increase Pressure on Liquidity

Mid-sized companies are increasingly facing rising energy, material and labour costs. This puts pressure on liquidity reserves and reduces freely available capital. This pressure is further intensified by tied-up capital.

As a result, companies are increasingly dependent on liquidity reserves. This makes working capital management an important control tool for avoiding critical liquidity bottlenecks.

Tied-Up Capital Limits Growth and Investments

A typical example from the mid-market:

A mid-sized company has €2 million in current assets. However, this capital is not freely available. It is tied up in inventories and slow collection of receivables.

This makes it more difficult to invest in growth, machines or personnel from the company’s own resources. Instead, the company remains dependent on a loan, even though the funds are already economically available within the company.

Inaccurate Cash Flow Forecasts Make Financial Decisions More Difficult

Finance and treasury teams in mid-sized companies often work with manual processes and several Excel lists. This can lead to inaccurate cash flow forecasts, which may result in poor decisions around investments or borrowing.

If there is no transparency over receivables, liabilities and payment flows, there is also no reliable basis for financial decisions. Transparency is the basis for efficient working capital management because it supports real-time liquidity planning and more informed decisions.

Treasury management solutions such as Financial Navigator close exactly this transparency gap. For many companies, such a platform is the first step towards better working capital management and transparent liquidity planning.

The Three Core Areas of Working Capital Management

Receivables Management: Turning Open Invoices Into Liquidity Faster

Days Sales Outstanding, also known as DSO or receivables collection period, is one of the most important key figures in receivables management. DSO describes how many days a customer needs on average to pay a receivable. Receivables management includes measures such as:

• Credit checks

• Automated dunning processes

• Invoicing

• Management of incoming payments

• Accounts receivable management

In working capital management, the goal is to reduce the DSO value as much as possible. This means achieving as few days as possible between invoicing and payment receipt. This enables higher liquidity, as capital can be converted into liquid funds faster.

Accounts Payable Management: Using Payment Terms Strategically

Accounts payable management is the counterpart to receivables management. It includes the management of payments that a company must make to suppliers, service providers and others.

Companies can make strategic use of supplier payment terms to protect their own liquidity.

Through extended payment periods and close alignment with the cash flow cycle, liquidity can be protected and short-term financing needs through borrowing can be reduced or avoided completely.

Companies can also benefit from cash discounts. Suppliers often grant a price reduction for fast payment, meaning companies do not have to pay the full amount.

Inventory Management: Reducing Tied-Up Capital in a Targeted Way

Another central lever in working capital management is inventory management. Excess inventories and high safety stocks often tie up significant financial resources and put pressure on liquidity.

Inventory management can be optimised through proven methods:

• Just-in-time: Material is only delivered when it is needed in production in order to keep inventories and storage costs as low as possible.

• ABC analysis: Items or suppliers are divided into classes A, very important, B, medium, and C, less important, according to their economic relevance. This allows the focus to be placed on the most valuable items.

• Automated inventory monitoring: Inventory levels are recorded digitally in real time and automatically trigger warnings or reorders when defined minimum levels are reached.

How Can Working Capital Be Improved in Mid-Sized Companies?

Working capital is very closely connected to the cash conversion cycle. The cash conversion cycle shows how much time passes between payments for goods, storage or suppliers and the later receipt of payments from customers.

Working capital can be improved when payment processes are shortened, made more transparent and aligned more closely with liquidity planning.

The following measures can be implemented relatively quickly in mid-sized companies and have a direct impact on working capital, cash flow and liquidity planning.

Automating Order-to-Cash and Purchase-to-Pay Cycles

Order-to-cash and purchase-to-pay describe the two sides of the cash conversion cycle.

The order-to-cash cycle covers the entire path from customer order to payment receipt. It consists of many steps that are often handled manually in mid-sized companies. The faster this cycle runs, the sooner money flows into the company and strengthens liquidity.

The purchase-to-pay cycle describes the counterpart. It is the process from ordering to supplier payment. Here too, many administrative steps arise. Payments must be checked and triggered at the right time.

Automation through Treasury Management Software such as Financial Navigator can shorten both core processes. This includes, for example:

• Immediate electronic invoicing

• Automated dunning

• Standardised invoice approvals

• Real-time overview of all due dates

These measures save time, reduce manual work and avoid delays and errors. This can noticeably improve cash flow because incoming payments are recorded faster. Due dates can then be managed better and tied-up capital can be released faster.

Using Cash Flow Forecasts to Detect Liquidity Bottlenecks Early

Forecasts are only as good as their data basis. If cash flow forecasts are based on outdated Excel lists, bottlenecks in mid-sized companies often become visible too late and are harder to plan for.

Through structured recording of payment flows and AI-supported liquidity planning, more precise cash flow forecasts can be created. Mid-sized companies can identify liquidity bottlenecks much earlier, and finance leaders can take countermeasures in time before a bottleneck arises. This supports finance teams specifically with the following decisions:

• Finance teams can plan investments better in terms of timing.

• Credit lines can be checked or adjusted earlier.

• Payment timings can be better aligned with expected incoming payments.

• Bottlenecks become visible before they become acute.

• Cash flow forecasts become an early warning system.

Rolling forecasts are especially effective, as they are continuously updated and therefore provide a realistic view of the coming weeks and months at all times.

Automation can relieve finance teams at this point and save time. Data no longer has to be updated and reconciled manually, but flows automatically into a central data basis.

This turns working capital management from reactive control into forward-looking liquidity management. Finance teams can do more than react. They can plan liquidity measures early and prioritise them in a targeted way.

Optimising Working Capital Management: From Excel to Data-Driven Financial Management

When finance teams rely on many manual processes and various Excel spreadsheets, data inconsistencies can quickly arise. This means that data is not updated consistently, is entered differently, and becomes more prone to errors. As a result, transparency is reduced, and there is a lack of visibility into actual liquidity, due dates, and cash flows.

Specialised TMS solutions help develop working capital management from slow control into active management and improved liquidity.

Working capital influences central finance areas such as:

• Liquidity planning

• Cash flow

• Financing

• Treasury processes

Working Capital Management and Treasury Management: Why Both Areas Belong Together

Working capital management and treasury management are not separate disciplines. They are closely connected.

Working capital management aims to manage receivables collection periods, payment terms and inventory levels in a targeted way.

All these factors influence cash flow, which treasury teams must plan and manage every day. For this management to work efficiently, treasury teams need current data to create forecasts, identify risks early and act accordingly.

A shared data basis improves planning and creates more transparency over liquidity, financing and payment flows. It is therefore important to manage and automate shared processes centrally.

Treasury Management System, TMS, vs. ERP Finance Module: The Key Differences

A common misunderstanding is that TMS solutions and ERP systems cannot be used together effectively or must replace each other. Instead, Treasury Management Systems complement ERP finance modules where specialised finance functions are needed.

ERP systems can manage many business processes, but they do not always offer the necessary depth for liquidity management, cash flow forecasts and treasury processes.

Criterion	ERP Finance Module	Treasury Management System, TMS
Focus	Transactions, accounting, operational processes	Liquidity, cash flow, treasury and working capital
Real-time visibility	Limited, often consolidated manually	Real-time view across all banks and accounts
Cash flow forecasts	Only basic functions	AI-supported, scenario-based forecasts
Bank connectivity	Limited	Multi-bank connections worldwide, SWIFT, EBICS, API
Adaptability	Extensive, but complex to adapt	Modular, quickly adaptable to needs
Implementation effort	High, lengthy	Low, live operation in a few weeks
User-friendliness	Broadly designed, less specialised for treasury	Dashboards tailored to finance teams

Financial Navigator: Real-Time Liquidity Planning for Mid-Sized Companies

Many mid-sized companies struggle with a lack of overview, which makes precise liquidity planning significantly more difficult. Finance teams often work with several bank connections and ERP systems and have to bring data together manually.

Strategies to improve working capital management and liquidity often fail when there is no central, transparent and reliable data basis.

Financial Navigator supports mid-sized companies in managing their liquidity planning centrally and improving it noticeably. As specialised Treasury Management Software, it offers:

• Central overview of accounts and payment flows

• Cash flow forecasts

• Liquidity planning

• Real-time reporting

• Management of central payment processes through one platform

This allows account balances, due dates and forecasts to be viewed in one consolidated view instead of manually reconciling information from different systems.

In a demo, companies can check how Financial Navigator supports their liquidity planning, cash flow forecasts and working capital management.

Conclusion: Working Capital as a Strategic Lever for More Liquidity

Mid-sized companies can face liquidity bottlenecks despite stable revenue. Common causes are:

• High capital tied up in operating business

• Rising costs for energy, materials and wages

• Inaccurate cash flow forecasts due to manual processes, Excel lists and a lack of transparency

Working capital management helps reduce pressure on liquidity and release tied-up capital in a targeted way. Through automation, central data and rolling cash flow forecasts, working capital management turns from reactive control into forward-looking liquidity management.

With specialised TMS solutions such as Financial Navigator, mid-sized companies can manage their working capital more professionally, transparently and proactively within just a few weeks.

Financial Navigator helps you connect liquidity planning, cash flow forecasts and treasury management in one central platform.

Arrange a demo and learn how Financial Navigator brings more transparency to your liquidity planning.