Working Capital Is the Cheapest Money in the Portfolio

Every transformation plan eventually arrives at the same slide: the ask. New systems, new hires, new tooling — funded, presumably, by the sponsor. And every sponsor hears it the same way: more capital in, later, at risk, to maybe get returns out.

The better answer is usually already inside the business. Mid-market companies run fat on working capital — not because anyone decided to, but because nobody owns the cash conversion cycle. Receivables age because collections are nobody's first job. Inventory accumulates because stockouts are visible and carrying costs are not. Payment terms are whatever the contract said in 2019.

The playbook is mechanical

Receivables: age the book, fix the invoicing errors that cause disputes, put collections on a weekly cadence with named owners. Inventory: rationalize SKUs, cut safety stock where service levels allow, stop buying ahead of demand you cannot evidence. Payables: renegotiate terms on the vendor tail, and stop paying early by default. None of this requires a market bet or a customer to change behavior. It is internal discipline, applied systematically.

Why self-funding changes the politics

The cash matters, but the governance effect matters more. A transformation funded by its own working-capital release needs no incremental sponsor check. That changes every conversation about it. The CFO becomes a sponsor instead of a skeptic. The board reviews progress instead of relitigating the budget. The team sees the program paying for itself — which buys patience for the parts that take longer.

We have run this sequence as a standing playbook, and the pattern holds: working-capital gains self-funded transformation in multiple portfolio companies. The compounding is the point — released cash funds the commercial rebuild, the rebuild improves margins and collections, which release more cash.

The exit dividend

There is a second payoff at the end of the hold. A company with a disciplined cash conversion cycle carries its proof into diligence: cleaner receivables, defensible inventory, terms that survive scrutiny. Buyers pay for operational discipline they can verify. Working capital is where they verify it first.

Rohit Urankar is an Operating Partner at Meridian Capital & Portfolio Partners, an embedded operating-partner platform for mid-market private-equity-backed companies. Get in touch.