We can use the working capital cycle to evaluate the impact of key business decisions.  

                                            

For example, a company might find an overseas source to reduce the cost of some of their materials.  However, they may have to pay upfront for all or part of the product cost.  There is also the time to ship the product over the water.  Put these together, and the company's working capital cycle could have just been increased by 45-60 days or more. 

Rather than just looking at the cost savings by going overseas on its own, the company can then compare this against the added financing costs.  If the average financing costs are running about 1% per month, a 60 day increase in the cycle costs 2%.  Going overseas should save much more than this. 

However, there is a more significant cost that can get overlooked.  A company in this circumstance also needs to consider the impact on its working capital financing capacity.  

For example, one company had to turn away business - they had a longer working capital cycle when they shifted to an overseas source.  As a result, they tapped out their banking line faster.  The shift overseas doubled their working capital cycle.  It meant they could only finance half as many sales.

The cost of lost business suddenly began to outweigh the savings going overseas.