How to Turn Late Receivables into Business Growth:
The Effective Management
of Working Capital

For many South African businesses, especially those in construction and manufacturing, growth doesn’t fail because of a lack of hard work. It fails because of the timing of cash inflows. 

You pay suppliers and labour up front, deliver the job, issue the invoice and then wait days, weeks, or sometimes even months to get paid. It may not be your fault, but it may be your downfall.

This is where working capital becomes the engine that keeps your business moving. It determines how smoothly you can operate between the moment money leaves your account, the work you do, and the moment cash finally lands back in your account. 

It also shapes your business’s financial health, because it determines whether you can keep covering operating expenses, supplier bills and payroll while you wait to receive money that is owed to you. 

Often, this process can be intimidating and complex. Here we unpack the importance of working capital management, explain what working capital is, show you how to calculate it, and explore practical strategies to help you improve it, especially when receivables are late.

You can turn delayed payments from risks into growth opportunities if you manage working capital proactively and maintain enough cash flow to keep operating while payments are outstanding.

Late payments don’t have to stall your business’s growth. Learn how effective working capital management helps South African businesses bridge cash gaps and unlock growth.

 

 

What is Working Capital?

Working capital is the difference between your current assets and current liabilities. In simple terms, it’s the cash buffer your business uses to operate day to day.

For South African small businesses, increasing working capital allows you to pay suppliers on time, cover payroll without stress, absorb late payments, and take on new projects without risking your cash reserve.

It is also central to your company’s working capital position: the strength of your working capital at any point determines whether the business can cover short-term obligations without relying on external funding.

Understanding what working capital is forms the foundation of effective working capital management. It also allows you to better assess your business’s financial health by measuring whether current assets exceed current liabilities and whether net working capital is positive or negative.

The Importance of Working Capital Management

Business owners know that profit on paper doesn’t pay salaries and that only cash in the bank account can fulfil this function. 

In South Africa’s current business environment, marked by high inflation, fluctuating material costs, and long payment cycles, the importance of working capital management cannot be overstated. Even profitable businesses can run into trouble if too much cash is tied up in current assets such as inventory or unpaid invoices.

Effective working capital management ensures you can meet short-term obligations, take on new work confidently, and avoid relying on expensive emergency funding. Strong working capital management is essential for maintaining liquidity and operational stability.

It is ultimately a core measure of financial health, because it determines whether current assets can be converted into liquid assets in time to meet liabilities.

When cash is tied up in receivables, your financial position can look strong on paper but be fragile in reality.

Avoid the ‘Growth Trap’

One of the most common mistakes growing businesses make is accepting a large new contract without the working capital to support it.

The result? You hire staff, buy materials and mobilise sites before the first payment arrives. Instead of accelerating growth, the contract drains your cash reserves and pushes the business into financial stress.

Without proactive working capital management, growth like this can actually increase the risk of failure. It’s a classic warning sign that a business may have weak short-term financial health, even if it appears profitable at the balance sheet date.

A strong working capital ratio is especially important during these growth periods because it indicates whether your business has sufficient current assets to cover current liabilities.

 

 

Dealing with 60-Day Payment Delays

Late receivables are particularly common, especially when dealing with large corporates or government clients. In construction and manufacturing, 60-day payment terms are often considered ‘normal’. 

The problem is that your suppliers, staff and the South African Revenue Service (SARS) don’t operate on the same timeline. When your cash outflows happen immediately, but inflows are delayed, the gap must be actively managed, or it could spell disaster.

In many cases, businesses need to evaluate their working capital ratio to understand how exposed they are to payment delays and whether their current assets are sufficient to cover current liabilities.

This is where tracking cash conversion cycles becomes essential, because it shows how long cash is tied up before it returns to the business.

 

 

How to Calculate Working Capital for Your Business

Before you can improve working capital management, you need to measure it. Calculating working capital gives you visibility into how much cash is currently tied up in operations and where pressure points exist. 

A working capital ratio calculation can also help you assess your company’s liquidity more quickly: it shows whether current assets are enough to cover current liabilities.

Clichéd though it may sound, you can’t manage what you can’t measure. Calculating working capital helps identify how much capital is ‘trapped’ on your balance sheet and unavailable for growth. This is especially important when large portions of current assets are in receivables and are not yet liquid.

For a more detailed breakdown, you can explore this guide on how to calculate working capital.

The Working Capital Formula

Current assets – Current liabilities = Net working capital 

 

 

This difference, also known as net working capital, provides an important snapshot of financial health. If net working capital is positive, the business typically has a stronger ability to meet short-term obligations.

If net working capital is negative, it may indicate the business is relying on delayed payments, advance payments or short-term borrowing to fund operating expenses.

Alongside net working capital, the working capital ratio is a common measure of short-term financial health because it compares current assets directly to current liabilities.

Decoding the Manufacturing Balance Sheet

Current assets

This includes cash, inventory such as raw materials and finished goods and unpaid invoices. Current assets may also include other short-term items such as advance payments made to suppliers, which can matter when cash is tight and short-term obligations are mounting.

Current liabilities

This includes accounts payable (often to suppliers), short-term debt, and SARS obligations in the form of VAT and PAYE. Current liabilities also include accrued operating expenses and other short-term obligations due within a year.

If a large portion of your current assets sits in receivables or inventory, your business may appear healthy while still experiencing cash strain.

That’s why measuring net working capital and checking the working capital ratio can give you a more accurate reflection of your business’s financial health and liquidity.

A good working capital ratio can be an early sign that your business is in a stable position to cover current liabilities and continue funding operational expenses.

 

 

How to Manage Working Capital When Receivables Are Late

The good news is that late payments don’t automatically mean poor working capital management. However, ignoring them usually does.

When account payments are delayed, businesses must shift from reactive debt collection to proactive cash flow cycle management. 

This means shortening the time between spending money and getting paid, rather than simply waiting for invoices to clear. It also means actively monitoring cash conversion cycles, because cash conversion cycles highlight how quickly current assets are turning into cash.

Effective handling of payment delays focuses on maintaining liquidity without stalling operations or growth. This requires constant attention to assets and liabilities: the balance between current assets and current liabilities determines whether you can cover short-term obligations consistently.

Proven Strategies to Improve Working Capital Management

Spreadsheets and calculations are important, but improving working capital management requires practical, real-world strategies. Below are proven approaches that can help you compress your business’s cash conversion cycle and regain control.

There are also strategies that improve net working capital by improving the balance of current assets and current liabilities.

 

 

Leverage agile funding

One of the most effective ways to achieve effective working capital management is to use a flexible line of capital to bridge payment gaps without locking your business into rigid debt.

These tools can stabilise net working capital when accounts receivable are late, and help protect financial health by ensuring you can still cover operating expenses and short-term obligations.

Agile funding can be effective as a construction financing solution, especially during the mobilisation phase of a project where upfront costs for site setup, labour and materials are highest.

With no early repayment penalties, you can settle the balance as soon as your client pays, minimising interest costs while maintaining healthy cash flow. This makes it a powerful working capital tool rather than a debt burden.

It also stabilises your business’s working capital by strengthening current assets during periods when current liabilities must still be met, even before funds are received.

Use Lula’s Cash Flow Facility as a flexible line of capital of up to R5 million that you can draw down as needed.

 

 

Use invoice financing and discounting strategically 

This approach unlocks cash already earned, allowing you to keep operating without waiting for extended payment terms to end. It can also improve your working capital ratio by increasing current assets and reducing reliance on short-term obligations.

For businesses with recurring delayed accounts receivable, invoice finance shortens cash conversion cycles and can prevent net working capital from deteriorating. 

Negotiate smart supplier terms

Align supplier payment terms more closely with your receivables cycle to reduce cash flow pressure and smooth out the gap between inflows and outflows. Adjusting accounts payable terms can support a healthier working capital ratio and improve net working capital by ensuring current liabilities don’t fall due before accounts receivable have converted to cash.

This is especially relevant for retail businesses and manufacturers, where supplier agreements influence cash conversion cycles. 

Stronger credit control reduces late payments and prevents working capital from being unnecessarily tied up in overdue invoices.

It reduces the size and age of accounts receivable, improves cash conversion cycles and strengthens short-term financial health by improving net working capital. It also ensures more current assets become liquid assets quickly enough to meet current liabilities.

Gain a Competitive Advantage with Your Working Capital

Effective working capital management gives your business the confidence to say ‘yes’ to large projects because you know you can fund them.

When working capital is under control, your debtors book no longer dictates your growth. Instead of waiting for payments to arrive, you actively manage the gap between expense and income.

In other words, you manage assets and liabilities so that current assets are converted quickly enough to meet current liabilities and cover short-term obligations.

That’s the difference between simply surviving late accounts receivable and using them to build your business’s liquidity.

Stop waiting 60 days for invoice payments. Discover how Lula’s flexible business funding solutions can unlock your working capital today.

 

 

FAQs

1. What are the five elements of working capital management?

Cash and cash equivalents, accounts receivable, inventory, accounts payable, and short-term financing

2. What are the four components of working capital management?

Core working capital components are managing cash flow, receivables (including accounts receivable), payables (including accounts payable) and inventory efficiently.

3. What are the strategies for managing working capital?

Aggressive (lower liquidity, higher risk); conservative (higher liquidity, lower risk); and moderate (balances short- and long-term funding)

4. What are the three types of working capital management?

Working capital management is often grouped into three practical areas: cash management, inventory management, and receivables, including accounts receivable (or debtors) management.