Mission-Critical: How to Optimize Working Capital for Aerospace, Defense and Government Contracting Opportunities

Strong demand, growing backlogs and increased government spending are fueling growth in the aerospace, defense and government contracting (A&D) sector. The pressure to deliver more product faster requires cash for investments in capacity and inventory, while at the same time, payment cycles for the industry have lengthened. Managing your working capital in this environment is mission critical to accelerate growth and capitalize on opportunities.

The first step is to understand your cash conversion cycle and assess where there are opportunities in your business to improve it. The second is to implement solutions, including banking and cash management tools that can increase your firm’s liquidity. Having additional liquidity allows you to maximize production and leverage your ability to solve today’s crucial challenge: becoming both more resilient and more efficient, so you are positioned for tomorrow’s successes.

Understand Your Cash Conversion Cycle

The cash conversion cycle (CCC) measures how long it takes to pay for materials and labor, build and deliver products, and collect payment. The median CCC was 132.76 days in early 2026, according to GuruFocus. And AlixPartners reports that the A&D sector has $75 billion in inventory, capital that could be redeployed in meaningful ways.

Operational realities drive longer, or expanded, CCCs. These factors can tie up cash for longer periods, putting pressure on a company’s ability to hire ahead of demand, invest in capacity, pursue acquisitions or bid aggressively on new programs and contracts.

• Extended inventory timelines as companies hold more long-lead components to manage supply-chain risk – a challenge that Deloitte anticipates will continue through at least 2027. 
• Longer payables cycles from customers, often prime contractors or OEMs.
• The need to pay suppliers before receivables come in, to keep supply chains moving and mitigate against production delays, which can further extend cash flows and intensify working capital pressures

Four Ways to Optimize Working Capital

Across the A&D sector, growth is outpacing cash flow, and cash conversion cycles are expanding. Simply put, businesses spending money today are waiting longer to get it back. Companies with a strong working capital strategy can turn this challenge into opportunity by putting four key systems in place.

Optimize payables 

According to McKinsey & Associates, up to 40% of procure-to-pay activities (activities to acquire, receive and pay for goods and services) could be automated. Automation elevates speed and accuracy while delivering more efficient, streamlined workflows. 
It’s smart to revisit your banking and financing solutions to make sure they offer the latest tools. Modern banking systems can integrate with your accounts payable (AP) solutions for seamless processing. And a commercial credit card strategy designed to work in tandem with your existing systems can lengthen pay cycles, improve cash flow, enhance controls and security, and return valuable rewards.

Improve receivables visibility

Start by analyzing receivables timing and payables behavior together to shorten the CCC and improve liquidity. This approach also minimizes the internal lift required so that companies can stay focused on executing contracts and driving growth. 
Application programming interfaces (APIs) and integrated technology can convert manual processes into automated ones, delivering real-time data, stronger controls and more accurate cash forecasting. 

Manage global cash and foreign exchange (FX) risk

Global sourcing and international customers add another layer of complexity to working capital. Foreign exchange exposure, cross border payments and currency volatility can affect cash flow and margins. Your company will want to structure FX risk and international liquidity to align with treasury operations and enterprise resource planning (ERP) systems. Visibility into where cash sits becomes even more critical as footprints expand.

Consolidate treasury strategy

Spreading financial activity across multiple banks can unintentionally sacrifice visibility, coordination and other advantages. Consolidating working capital strategies with a single, industry focused partner can improve terms, reduce costs and deliver a clearer view of how cash supports growth. 
A good place to start is a working capital analysis. To maximize cash flow and performance, work with a banking expert experienced in A&D business models and contract cycles. A bank partner with A&D expertise can add helpful context to identify cash flow opportunities across receivables, payables and operations.

What to Ask to Get Started with a Strong A&D Working Capital Strategy

To optimize working capital, A&D companies can start by asking:

• How many days of cash are tied up in inventory, receivables and payables? 
• Which suppliers are eligible for card payments? 
• Where could AP automation reduce manual processing costs? 
• How much FX exposure exists across contracts, suppliers or international customers? 
• Would consolidating treasury services improve visibility or pricing?

The best way to truly optimize your strategy is to put an A&D financing expert on your team. With deep industry experience and optimized payables solutions, Western Alliance’s Aerospace, Defense & Government Contracting experts can help A&D businesses turn working capital into a competitive advantage. Contact a relationship banker to learn how to optimize your working capital strategy and accelerate momentum in today’s A&D landscape.