Most portfolio companies treat working capital as a hygiene task. The controller runs the AR aging report, somebody chases the late payers, and the number lands wherever it lands at quarter end. It sits in the back office next to the close process and nobody in the value creation plan gives it a second look.
That is a mistake. Working capital is one of the fastest sources of cash in a portfolio company, and most of the cash that is trapped is trapped because nobody can see it clearly.
This is a data problem before it is a finance problem. When a company cannot see DSO, DPO, and inventory by segment in near real time, cash sits stuck in plain sight. You walk past it every day and you do not know it is there.
Why this lever gets ignored
Working capital does not feel strategic. It does not show up in the deal thesis the way revenue growth or margin expansion do. The board deck has a slide for the new sales hire and the pricing initiative. It rarely has a slide for “collect faster and pay smarter.”
So the lever sits idle while the team chases harder, slower wins. Twelve months into the hold, the company has a half-built CRM rollout and a pricing study that is still in committee, and meanwhile there is real cash sitting in receivables that nobody freed up because nobody looked.
Value-creation research backs this up. When you look at the value-creation index work from groups like Preqin and FTI, working capital and cash conversion are consistently among the fastest levers to show value in a hold. They move quicker than most operational initiatives because the cash already exists inside the business. You are not creating it. You are releasing it.
That is the part most teams miss. Releasing trapped cash is faster than earning new cash, and it is almost entirely a visibility exercise.
What trapped cash actually looks like
Here is a representative case from work I have seen.
A mid-sized industrial company, profitable, growing, two years into a hold. The plan was tracking on revenue but cash was tight, and the team assumed that was just the cost of growth. More volume meant more receivables and more inventory, so the squeeze felt normal.
It was not normal. It was invisible.
The company ran three business segments through one consolidated finance view. That single view showed a blended DSO of around 50 days, which looked acceptable, so nobody pushed on it. The blend hid everything that mattered.
Once the team could break cash conversion down by segment, the picture changed. One segment was collecting in 38 days. Another was sitting at 71 days because a handful of large customers had quietly negotiated extended terms that never got escalated. Inventory told the same story. One product line was turning fine. Another had months of slow-moving stock buried inside a healthy-looking aggregate.
None of this was hidden by anyone. It was hidden by the chart of accounts and a reporting setup that only ever produced the blended number.
Within roughly three months of building a clear, segmented view of cash conversion, the company freed up a large amount of trapped working capital. No new product. No new customers. No layoffs. Just the ability to see DSO, DPO, and inventory at the level where the problems actually lived, and then act on what the numbers showed.
That is the pattern almost every time. The cash is already there. The company just cannot see it at the resolution where it can be acted on.
The three numbers, at the resolution that matters
Working capital is mostly three things. How fast you collect, how fast you pay, and how much cash is tied up in inventory. The cash conversion cycle ties them together.
The problem is never that a company does not track these. It is that it tracks them as single blended numbers across the whole business. A blended DSO of 50 days tells you nothing about which segment, which customer cohort, or which product line is the actual drag.
Three questions tell you whether your company can see its own working capital.
Can you produce DSO broken down by customer segment and by individual large account, updated at least weekly? If the answer is a month-end report and a spreadsheet, the company is operating blind between pulls, and that is where the late payers hide.
Can you see DPO by vendor category, and do you know where you are paying early for no reason? Paying a 60-day invoice in 30 days is a free loan to your supplier. Most companies give several of those loans without ever deciding to.
Can you break inventory down to the SKU or product-line level and see what is actually moving versus what is sitting? Aggregate inventory turns hide the slow-moving stock that quietly consumes cash and warehouse space.
If those numbers take days to assemble and live in someone’s personal workbook, the company cannot manage working capital. It can only react to it after the cash is already gone.
Why this is a year-one lever, not an exit lever
The instinct is to treat working capital as something you clean up right before exit, alongside the revenue reconciliation and the EBITDA adjustment documentation. That matters too, and I have written about the exit side of this in the CFO’s guide to data-driven exit preparation. The working capital peg negotiation at exit is real and it is worth getting right.
But waiting until exit wastes the best part of the lever.
Cash released in year one is cash you can redeploy for the rest of the hold. Fund the growth initiatives. Pay down the revolver and cut interest cost. Reduce the equity check on a bolt-on. Every dollar of trapped working capital you free up early is a dollar working for the thesis for four more years instead of sitting idle in receivables.
Cash released in year four is cash you found too late to do anything with except hand it to the buyer at a discount, because by then it shows up as a one-time working capital improvement that a sharp diligence team will treat as exactly that.
This is why working capital belongs in the value creation plan from day one, not on the exit checklist. The earlier you can see it, the longer the cash has to compound for you. It is the same logic that runs through data-driven value creation planning. Visibility early in the hold compounds. Visibility late in the hold is a fire drill.
How to make it visible
The fix is not a finance transformation. It is a data exercise, and a small one relative to the cash it releases.
Start with the chart of accounts and the dimensions you actually need. If you cannot tag receivables, payables, and inventory by segment, customer cohort, and product line, you will never get past the blended number. The first job is making sure the data carries the labels you need to slice it.
Then build the three views, at resolution. DSO by segment and by major account. DPO by vendor category. Inventory by product line. Update them on a cadence that lets you act, which for most mid-market companies means weekly, not monthly. The goal is one trusted version of each number that finance, sales, and operations all read the same way.
Then tie those numbers to owners and targets. A DSO view that nobody owns is just another dashboard. Each number needs a person, a baseline, and a target, the same discipline behind a one-page data value creation plan. When the numbers are visible and owned, the conversation in the operating review shifts from “cash feels tight” to “this account slipped to 71 days, here is who is on it.”
None of this takes a year. Establishing trusted, segmented working capital visibility is usually a matter of weeks once the data is tagged correctly. The case I described moved in roughly three months from a blended blind spot to freed cash.
The takeaway
Working capital is one of the fastest, cheapest sources of value in a portfolio company, and it is almost entirely a visibility problem. The cash is already inside the business. It is trapped because the company can only see a blended number that hides where the real drag lives.
If you cannot see DSO, DPO, and inventory by segment in near real time, you have trapped cash you have never counted. Make it visible, give it an owner, and pull the lever in year one when the released cash still has four years to work for the thesis.
If you want a structured way to gauge whether your portfolio company can see the numbers that drive value, start with the VCP Data Score. It will tell you fast whether you are flying on instruments you can read.