What one day of working capital is worth to a metal supplier with €10 million revenue, and which lever to pull first

The bank calls in October. The €1.5 million overdraft facility has been at its limit almost every week since August, while the order book is fuller than last year and the post-calculation shows a net margin of 5 percent. The managing director of a metalworking company in Brabant, sheet metal and welded assemblies, 60 people, €10 million revenue, has one explanation for this: the OEM customers pay after 60 days and sometimes later. That is true, and it accounts for €1,823,288 of the €2,277,808 of working capital tied up in the company.

The other €454,520 sits in the shop floor and the office. There is seven weeks of sheet metal in stock and assembled modules are waiting for a call-off. Last week's invoices have not gone out yet, because the work planner is finishing the post-calculation first. At this company working capital has five items, each with its own lever, and each lever has its own price per euro freed. The OEM payment term, the lever the managing director wants to pull, only comes third in that order.

How much is one day of DSO worth at €10 million revenue?

Revenue is €10 million excluding VAT. Per day that is €27,397. A customer gets an invoice including 21 percent VAT, so every day that invoice is outstanding, €33,151 is out. For the invoice system, the Belastingdienst (Dutch Tax Administration, government source) states that the invoice date determines in which period you declare the VAT, and that you pay on the last day of the month following the quarter. If you invoice on 20 December, you pay that VAT by 31 January at the latest, while a customer on 55 days only pays in mid-February. For invoices at the end of each quarter you therefore advance your customer's VAT.

One day of receivables at this revenue is therefore €33,151 of working capital. In the worked example the receivables stand at 55 days, which is €1,823,288. At an overdraft rate of 5.5 percent (according to euribor-rates.eu, market data, 3-month Euribor stood at 2.617 percent on 30 September 2026, and a bank margin comes on top), one day of receivables costs €1,823 of interest per year. Ten days is €331,507 of cash and €18,233 of interest.

What is one day of inventory and one day of payables worth in euros?

Inventory and payables run over the purchase value, which at this company is €6 million per year: 4.2 million of sheet, tube, stainless steel and aluminium, and 1.8 million of subcontracted work and bought-in parts. One day of inventory is 6,000,000 divided by 365, so €16,438. One day of payables runs over purchases including VAT: €19,890.

Little (1961) (peer reviewed) formulated L = λW: the average number of units in a system is the arrival rate times the average time spent in it. Little (2011) (peer reviewed, free copy) repeats that formulation fifty years later for queueing systems. Translated to a shop floor: inventory in euros is purchases per day times the number of days a euro of purchases stays in the building. If you want to reduce your inventory days, the only thing you can change is the time spent, because throughput is exactly what you do not want to touch.

In the worked example that euro of purchases stays in the building for 70 days. Thirty of those days it is sheet and profile, and 25 days work in progress on the laser and in the welding shop. For the last 15 days it sits as finished product waiting for a call-off or for the invoice. Together that is €1,150,685. Suppliers are paid after 35 days, and that is €696,164 they advance. Trade working capital is then 1,823,288 plus 1,150,685 minus 696,164, so €2,277,808. That is almost 23 cents per euro of revenue, and it explains why a €1.5 million overdraft facility is at its limit at a company that makes a profit. How exactly that difference between profit and cash arises is covered in the article on the food producer with €400,000 profit and €60,869 less in the bank.

The last row is the cash conversion cycle: 55 plus 70 minus 35 is 90 days. Receivable days are days sales outstanding (DSO) and inventory days days inventory outstanding (DIO); payable days, days payable outstanding (DPO), are subtracted. The article on the importing wholesaler that pre-finances 122 days explains that cycle; here the question is which of the days is cheapest to shorten.

What does it cost to reduce your DSO, setting by setting?

The receivables lever has four settings, and they cost very different amounts.

The first setting is the invoice date. In the worked example the invoice goes out on average ten days after delivery, because the work planner finishes the post-calculation first and the finance team invoices once a week. Two days after delivery is achievable if the packing slip triggers the invoice and the post-calculation follows afterwards. That is 8 days of DSO, €265,205, and it only costs a different order in the process. We see suppliers overlook this most often, because the customer's payment term only starts running on the invoice date and nobody counts the ten days before it. The article on the machine builder that budgets 2,400 hours and only sees 2,870 at invoicing shows where that delay comes from.

Then the reminder routine. Atradius (2026) (market report) reports for the Netherlands that just under a fifth of B2B invoices are outstanding after the due date, on average two weeks late, and that bad debt write-offs are around 1 percent of B2B invoices. On €10 million revenue, 1 percent is €100,000 per year. In the worked example a fixed routine (a reminder on the due date, a phone call after a week, statutory commercial interest in the second reminder, and a fixed contact at the customer whom you call) brings DSO down by 4 days, €132,603 of cash, and costs €15,000 per year in hours. Counted on interest alone that is 11.3 percent per euro freed, more expensive than the bank. If the routine brings write-offs from 1 to 0.8 percent, that yields €20,000 per year and the lever pays for itself. According to the Rijksoverheid (Dutch central government, government source), statutory commercial interest has been 10.4 percent since 1 July 2026; we see that suppliers almost never charge it to an OEM, but mentioning it in the reminder does speed up payment.

The third setting is the payment term itself, and here the law has a seat at the table. Burgerlijk Wetboek Boek 6, artikel 119a (Dutch Civil Code, government source, statutory text) provides in paragraph 5 that parties can agree a final payment date of at most 60 days, unless they explicitly include a longer term that is not manifestly unfair. Paragraph 6 goes further: if the debtor is a legal entity that on two consecutive balance sheet dates does not meet at least two of the requirements of article 2:397 of the Civil Code, and the creditor is a company that does meet them, the parties cannot agree a payment term of more than 30 days, and a clause contrary to this is void. In plain words: a large OEM may not impose 60 days on an SME supplier. The Rijksoverheid (2023) (government source) writes that since July 2022 this also applies to payments from large companies to SMEs, and that the average payment term of large companies to SMEs fluctuated between 40 and 43 days in 2022.

Whether a customer falls under paragraph 6 depends on its size within the meaning of article 2:397 of the Civil Code and on yours. In the worked example 60 percent of revenue comes from customers that fall under that threshold and now pay after 60 days. If they move to 45 days, that is 15 days on 60 percent of the daily value: €298,356. If they move to the statutory 30 days, it is €596,712. The price of this setting is the relationship, and that is real. Klapper, Laeven and Rajan (2012) (peer reviewed, Review of Financial Studies; free version as NBER working paper) show on almost 30,000 trade credit contracts that the largest and most creditworthy buyers get the longest terms from smaller suppliers. A small party asking a large buyer for a short term is therefore going against the pattern. We see that an OEM buyer is more likely to accept a shorter term in exchange for something other than money: a call-off agreement, a fixed lead time, a quarterly price or a longer contract.

The fourth setting is an early payment discount, and it is the most expensive. Suppose the company offers 2 percent discount for payment within 10 days. If all customers take it, DSO goes from 55 to 10, 45 days, and that is €1,491,781 of cash. The discount costs 2 percent of 10 million, €200,000 per year. That is 13.4 percent per euro freed, more than double the 5.5 percent at the bank. Petersen and Rajan (1997) (peer reviewed, Review of Financial Studies; free version as NBER working paper) calculate in their working paper that a customer who passes up a 2 percent discount at 10 days and pays on day 30 is effectively borrowing over those 20 days at 43.5 percent per year. With a 60-day term the discount runs over 50 days; at simple annual interest that is 2 divided by 98, times 365 divided by 50, so 14.9 percent. A discount only becomes the right lever if the bank says no to more credit, or if you do not want to carry the customer's loan yourself. How a higher interest rate makes receivables more expensive is covered in the article on the wholesaler that lets its customers pay in 52 days.

What does it cost to reduce inventory days and extend payable days?

For inventory there are four settings: finished product, raw material, work in progress, and the purchasing agreement that pulls the other way in October.

Finished product is the cheapest setting. In the worked example modules sit ready for 15 days on average: waiting for a call-off, for a transport schedule, for the final inspection, or for the invoice that may only go out after the last measurement. Taking seven days off (shipping on the day it is ready, and invoicing on completion if the contract allows it) is €115,068, and costs an agreement with the customer on the call-off date.

With raw material the slack is in the reorder point. Thirty days of sheet metal suits a sheet metal shop that promises fast lead times, but in the worked example the reorder point is still set on consumption from two years ago. Taking ten days off by setting the reorder point on actual consumption per item group is €164,384, and costs an afternoon per quarter in the ERP. Some companies hold stock on consignment from the steel supplier: the sheet lies in your building, but is his until you cut it. In the worked example that takes 15 days out of raw material, €246,575, at a price premium of 1.5 percent on 4.2 million of material purchases, €63,000 per year. That is 25.6 percent per euro freed, the most expensive lever in this piece. Consignment only pays if the supplier does not charge the premium because he wants the business, and we come across that at steel service centres that are themselves full.

Work in progress is the toughest setting. In the worked example there are 25 days between the first cut and the last weld, and every day a half-assembled module waits for the next operation is €16,438. There, planning is the only lever. The article on the machine builder with €700,000 of work in progress that is at its credit limit goes into that in more depth.

The fourth setting is one the company wants to turn the other way in October. According to market reports of 25 September 2026, steel price increases have been announced for the fourth quarter, and the temptation is to buy a quarter's worth of sheet ahead. In the worked example a quarter of material is €1,050,000. At a 5 percent price rise, buying ahead saves €52,500. The extra inventory costs 90 days of interest, €14,240, plus space, handling, risk and insurance, in this worked example 2 percent per year, €5,178. Net €33,082 gain, and that is a good decision if the overdraft facility can carry that €1,050,000 in November. If the limit is already close to 1.5 million, it cannot, and that is the reason to pull the receivables lever first: it frees the room that lets you turn the inventory lever the wrong way for a while. What a fixed selling price does when the steel price rises between quotation and purchase is covered in the article on the machine builder and the steel price.

Payables have two settings. The first is the term your supplier already allows. In the worked example the steel supplier's purchasing terms say 45 days and the finance team pays after 35, because the payment run is on Friday and nobody uses the due date. Paying ten days later within the agreed term is €198,904, at zero cost and without a conversation. The second setting is the discount you pass up. If the supplier offers 1 percent for payment within 14 days, that discount costs €42,000 per year on 4.2 million of material, and passing it up yields 31 days at €13,923 per day, €431,622: 9.7 percent per euro. That too is more expensive than the bank. So if you have credit, you take the supplier's discount for €42,000 and do not offer one to your customers for €200,000.

Which lever do you pull first to free up working capital?

Sorted by price per euro freed, the order is in the last column.

Together the first six settings are €1,174,521 of cash (the rows in the table are rounded separately), and they cost €15,000 per year plus a few conversations. Receivables go from 55 to 34 days, inventory from 70 to 53, payables from 35 to 45, and the cash conversion cycle from 90 to 42 days. Trade working capital drops from 2,277,808 to €1,103,288, and the interest on it falls by €64,599 per year. Compare that with the credit increase the bank would offer in October: €500,000 of extra limit costs €27,500 of interest per year plus commission and security, and frees less than half of what the levers yield.

Deloof (2003) (peer reviewed, Journal of Business Finance & Accounting) found at 1,009 large Belgian companies that managers can increase profitability by reducing the number of receivable days and inventory days. Baños-Caballero, García-Teruel and Martínez-Solano (2014) (peer reviewed, Journal of Business Research) find an inverted U at UK companies: there is an optimal level of working capital that balances costs and benefits, and that optimum is lower for companies that find it harder to get financing. They also warn about the other side, lost sales and lost discounts for early payment. That is exactly the table above: the three settings at the bottom right cost more than they yield as long as the bank charges 5.5 percent, and only become the right lever if that bank drops out.

How do you calculate the value of one day of working capital for your own company?

The proper method is a working capital model per customer, per item group, per supplier and per month, updated from the ERP, and we build that model for clients, so we have an interest of our own here. The do-it-yourself version takes an hour and a set of annual accounts. Divide revenue including VAT by 365 for the daily value of receivables. The daily value of inventory is cost of sales divided by 365, and for payables you multiply that by 1.21. The balance sheet items divided by those daily values are your days. Next to each lever, put what it costs you to turn it by one day, and sort.

The average hides where the money sits. A DSO of 55 can consist of two OEMs at 72 days with 60 percent of revenue, and thirty small customers at 30 days with the rest. The daily value of those two OEMs is 60 percent of €33,151, €19,890 per day, and the 12 days they pay after their 60-day term cost €238,685 of cash. The same exercise for inventory: 30 days of raw material may be 12 days of sheet that turns over every week and 90 days of stainless steel for one customer who orders twice a year. The lever is in that stainless steel. The article on the €396,000 of inventory that has not moved in twelve months works that out.

What is acceptable depends on the credit room. In the worked example, 23 cents of working capital per euro of revenue is too much for a €1.5 million limit; 11 cents after the six settings fits comfortably. For the Dutch market as a whole Atradius gives a DSO of about three weeks; in our practice a supplier to OEMs is almost always above that, and 34 days is a level for this profile at which the bank no longer calls. How a bank looks at growth and working capital is covered in the article on the installation company that gets stuck at the bank.

When does this not apply?

At a company that mainly makes one-offs and prototypes, work in progress is the largest item and no purchasing or invoicing agreement helps; there, partial invoicing per milestone is the only lever, and it is covered in the article on extra work that never reaches an invoice. If a company has ample credit, the order reverses: the optimum of Baños-Caballero and colleagues is lower for companies with a financing constraint, so higher without one, and then a longer term for a good customer can yield more revenue than the interest costs. A machining company with expensive alloys and long machining times has a small inventory lever, because the raw material is bought per order; there the money sits in the 25 days of work in progress and in the measurement that holds up the invoice. And the worked example assumes that the OEM customers fall under paragraph 6 of article 6:119a; if the customer is itself a medium-sized company, the 60 days of paragraph 5 apply, and then the third setting is a negotiation without legal backing.

Questions for your lawyer and your accountant

We do not give tax or legal advice; we do make visible what you need to seek advice on. Does my largest customer fall under the 30-day limit of article 6:119a paragraph 6 of the Civil Code, and what does the voidness of a longer clause mean in practice under a running framework contract? May I charge the statutory commercial interest of 10.4 percent without having included it in my terms and conditions? Can I switch to monthly VAT returns if I structurally pre-finance VAT, and what does that mean for my periods and payment dates? And with consignment: who bears the risk of the sheet metal lying in my building, and how does it appear on my balance sheet?

Frequently asked questions about what one day of working capital is worth

How much is one day of DSO worth at €10 million revenue?

€33,151. Divide revenue including VAT (12.1 million) by 365. Excluding VAT it is €27,397, but the customer pays including VAT and you declare that VAT in the period of the invoice date.

Which lever do I pull first to free up money?

The lever that costs least per euro freed. In the worked example with €10 million revenue, on the customer side that is invoicing within two days (€265,205) and shipping finished product immediately (€115,068), and on the purchasing side using the full supplier term (€198,904): together €579,177 at zero cost. After that, the reorder point for raw material and the payment term of the large OEMs.

How much working capital can I free up at €10 million revenue without extra credit?

In the worked example €1,174,521, 11.7 percent of revenue, from the six settings at the top of the table, from faster invoicing to a fixed reminder routine. Together they cost €15,000 per year, and the cash conversion cycle goes from 90 to 42 days.

Is a 2 percent early payment discount more expensive than my bank interest?

Yes, at a bank rate of 5.5 percent. Two percent discount for payment within 10 days costs 2 percent of revenue and brings DSO in the worked example from 55 to 10 days; that is 13.4 percent per euro freed.

What do I gain if I bring my receivable days from 55 to 45?

At €10 million revenue that is ten days times €33,151, so €331,507 of cash, and €18,233 of interest per year at 5.5 percent.

Can a large OEM impose a 60-day payment term on me?

Article 6:119a paragraph 6 of the Dutch Civil Code provides that a large company, within the meaning of article 2:397 of the Civil Code, cannot agree a final payment date of more than 30 days with an SME creditor, and that a clause contrary to this is void. Whether your customer falls under this is a question for your lawyer.

Should I buy extra steel now, before the price increase?

Only if your overdraft facility can carry it. In the worked example, buying a quarter ahead at a 5 percent price rise yields €33,082 net, after interest and inventory costs. It does need €1,050,000 of extra room in November, and that room has to come from the receivables lever first.

Further reading: Why an importing wholesaler with €9 million revenue pre-finances almost €3 million, What the rate rise costs a wholesaler that lets its customers pay in 52 days, Why a food producer with €400,000 profit has €60,869 less in the bank, Why a technical wholesaler takes a €600 discount on an MOQ and loses €1,225 on it, Cash flow as a brake on growth.

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