For CFOs and finance leaders, working capital is the heartbeat of business health. It determines how quickly a company can turn investments in inventory and receivables into cash. A sluggish cash conversion cycle (CCC) ties up funds, limits agility and increases reliance on external financing. In today’s economic climate, improving working capital efficiency is not just desirable – it is essential.
Microsoft Dynamics 365 Business Central provides the tools to optimise working capital across receivables, payables and inventory. By leveraging features like credit limits, payment predictions, dunning, inventory management and vendor terms, CFOs can shorten the CCC by up to 15 percent. This blog explores practical tactics and includes a simple model template to help you measure and improve performance.
Why working capital matters
The cash conversion cycle measures how long it takes to convert resources into cash. It combines three components:
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Days Sales Outstanding (DSO): How quickly you collect from customers.
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Days Inventory Outstanding (DIO): How long stock sits before being sold.
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Days Payable Outstanding (DPO): How long you take to pay suppliers.
The formula is simple: CCC = DSO + DIO – DPO. A lower CCC means faster cash generation and less reliance on borrowing. According to Gartner, businesses that actively manage working capital can reduce financing costs by up to 20% and improve liquidity for growth initiatives.
How Business Central helps CFOs optimise working capital
Business Central offers integrated capabilities that address each component of the CCC. Here’s how:
1. Credit limits and risk management
Managing credit exposure is critical for reducing DSO. Business Central allows you to set credit limits per customer and receive alerts when orders exceed those limits. This prevents overextension and reduces the risk of bad debt. Combined with customer credit histories, CFOs can make informed decisions about extending terms or requiring upfront payments.
2. Payment predictions with AI
Copilot in Business Central uses AI to predict when customers are likely to pay based on historical behaviour and current trends. This insight helps finance teams prioritise collections and forecast cash flow more accurately. For example, if a key customer consistently pays late, you can adjust terms or follow up proactively.
3. Automated dunning for faster collections
Dunning processes often stall because they rely on manual follow-up. Business Central automates reminders for overdue invoices, escalating from gentle nudges to formal notices. This reduces ageing receivables and improves DSO without adding administrative burden.
4. Inventory turns and demand-driven replenishment
Excess inventory ties up cash and inflates DIO. Business Central’s planning tools optimise stock levels using demand forecasts, safety stock and reorder points. By improving inventory turns, businesses free up working capital while maintaining service levels. Real-time visibility into stock also prevents over-purchasing and reduces obsolescence risk.
5. Vendor terms and payment scheduling
Extending DPO without damaging supplier relationships is a balancing act. Business Central enables you to configure vendor terms and schedule payments strategically. You can take advantage of early payment discounts where beneficial or delay payments within agreed terms to preserve cash. Automated workflows ensure compliance and prevent missed deadlines.
Building a simple working capital model
To measure and improve CCC, start with a simple model using data from Business Central:
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Step 1: Calculate DSO
DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of Days
Use Business Central’s receivables reports for accurate figures.
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Step 2: Calculate DIO
DIO = (Inventory ÷ Cost of Goods Sold) × Number of Days
Pull inventory and COGS data from Business Central’s item ledger.
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Step 3: Calculate DPO
DPO = (Accounts Payable ÷ Cost of Goods Sold) × Number of Days
Use payables reports for vendor balances and payment terms.
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Step 4: Compute CCC
CCC = DSO + DIO – DPO
Track this monthly in Power BI for trend analysis and improvement targets.
Business Central integrates seamlessly with Power BI, allowing you to visualise CCC alongside KPIs like inventory turnover, overdue receivables and supplier payment performance. Dashboards make it easy to share insights with the board and operational teams.
Practical steps to lift CCC by 15 percent
Here’s a roadmap for CFOs:
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Audit current CCC: Use Business Central and Power BI to establish a baseline.
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Prioritise quick wins: Automate dunning and enable payment predictions to reduce DSO immediately.
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Optimise inventory: Review planning parameters and safety stock to improve turns.
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Negotiate vendor terms: Align payment schedules with cash flow needs without harming relationships.
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Monitor progress monthly: Track CCC and related KPIs in dashboards to sustain improvements.
The payoff: liquidity and resilience
By leveraging Business Central’s capabilities, CFOs can achieve:
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Shorter cash conversion cycles: Free up working capital for growth and investment.
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Improved forecasting: AI-driven payment predictions enhance cash flow planning.
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Operational efficiency: Automation reduces manual effort in collections and payments.
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Stronger supplier and customer relationships: Transparent terms and proactive communication build trust.
As Microsoft notes, “Dynamics 365 Business Central empowers finance leaders to optimise liquidity and drive strategic outcomes through intelligent automation and analytics.” For SMEs and mid-market firms, this means turning working capital from a constraint into a competitive advantage.
Ready to improve your cash conversion cycle?
If your CCC exceeds industry benchmarks, now is the time to act. Start with automated collections and inventory optimisation, then build a Power BI dashboard to track progress. With Business Central and Copilot, working capital excellence is within reach.