Working Capital – Understanding What’s Driving Your Capital Needs

Most companies don’t notice that working capital is a problem – until it already is.

Do any of these situations sound familiar?

You’re growing and selling more, yet cash feels tight. A major customer has negotiated longer payment terms, and what used to be enough no longer is. Meanwhile, you need to build up inventory or pay suppliers before you get paid yourself.

It’s not always about growth. A supplier starts requiring prepayment or collateral, customers pay later during a weaker economy, or the business is affected by seasonal variations.

It’s rarely one dramatic change. It’s the sum of several small things that suddenly no longer add up.

Working capital and equity – two different things with different purposes

Equity creates stability and funds investments as well as the company’s long-term development.
Working capital is about day-to-day operations, ensuring the business has sufficient liquidity to handle ongoing costs, fluctuations, and changing conditions.

In practice, it’s working capital that determines whether you can say yes when a big deal comes along, or have to turn it down because the cash isn’t there.

Working capital in practice

At its core, working capital comes down to one simple but critical question: when does money come in, and when does it need to go out?

The gap between the two is where the challenge lies. Revenue often sits in the future while costs must be paid today. Capital is tied up in receivables, inventory, or ongoing projects and isn’t available in the bank account. This affects every company, regardless of profitability.

It’s not just about seeing where capital is tied up, but understanding why. Which contracts, customer segments, and internal decisions are actually driving the capital need? That insight is what makes it possible to act at the right time, not after the fact.

Read more about working capital here 

When the need changes

Almost every company going through change or growth will see a shift in its working capital needs. It can be driven by market growth, but just as often by internal business decisions.

Many of Greenstep’s clients are growth companies, where working capital can be just as critical as profitability. When a company is growing by more than 100% and individual projects can amount to hundreds of millions of kronor, many factors come into play.

For management, it can feel like losing control even when everything looks fine on paper. For us, it’s part of everyday life, and that combination of confusion and growth is actually one of the most common reasons companies reach out to us.

It’s often not a single factor, but several changes that together increase the capital need.

To help companies understand the reasons behind increased capital needs, Greenstep has developed a multi-step model that starts with a current-state analysis. We map the status of the key areas driving capital tied up in the business. We also run benchmark comparisons against previous periods to better understand what has changed and what’s behind the increased capital need. Where possible, we make external comparisons to see how the company stacks up against others in the industry.

Key areas mapped in the analysis:

• Internal factors – current status of accounts receivable, accounts payable, and inventory
• Commercial terms – contracts and payment terms for key customers/customer segments
• Process compliance – KPIs highlighting critical areas such as debtor days or the share of purchases made through framework agreements

Based on the current-state analysis, the company gets an overview of the most critical areas for setting goals and strategies to improve cash flow, and Greenstep can help calculate the financial impact of different measures: Working Capital Strategies.

The case: from 20 to 150 million – with working capital as the key

One of our client companies in Sweden, a SaaS business in IT services, had long wanted to establish itself in new markets. Every attempt had stalled for the same reason: declining liquidity and a cash flow that couldn’t hold together as deals grew larger.

The current-state analysis quickly identified the core problem: international customers had significantly longer payment terms than Swedish ones, and the size of the deals – large multinational groups – amplified every weakness. What could be managed in Sweden couldn’t be managed globally.

The solution was to adapt the commercial terms market by market: fixed prices paid annually in advance, usage billed in arrears. Not the Swedish model – but one that several international markets were accustomed to and accepted without issue.

Three years later, the company turns over 150 million, up from 20 million when we began working together. They now operate in the Nordics, the US, and Australia. Working capital wasn’t the only thing that changed, but it was what unlocked the ability to grow.

Often it’s a combination of measures that delivers the best results. The company is continuously implementing further improvements, and progress is tracked monthly through Greenstep’s analytics service – BI Book.

The most common mistake we see isn’t companies choosing the wrong solution. It’s acting too late – when the room to manoeuvre is already gone.

What we do

We help companies understand their working capital based on their own business, not a generic template. That means looking at your specific business decisions, your customer terms, and your particular market conditions.

For fast-growing companies, this becomes especially critical. And in many cases, it’s an ongoing effort to negotiate new structures and financing solutions as the business develops.

By working with hundreds of companies every year, we’ve developed a strong ability to quickly identify challenges and opportunities. With a broad network, from banks to alternative financing providers, we can also help you put the right solutions in place.

What is a new situation for you, we’ve seen hundreds of times. That experience shortens the time it takes to find the right answer.

What it leads to

With the right understanding of working capital, you gain better control over liquidity, lower vulnerability to change, and above all: the ability to make decisions proactively rather than reacting when it’s already too late.