Mastering working capital for FY26

As manufacturers enter a volatile new financial year, cashflow visibility and sharper working capital strategies are proving critical to resilience and growth.

As the 2026 financial year approaches, Australian manufacturers find themselves navigating a complex and uncertain operating environment. 

Global instability, shifting trade dynamics and persistent cost pressures are combining to test the most established businesses. While external forces remain largely beyond control, the internal levers of cashflow and working capital are under scrutiny.

Against this backdrop, Tim Linke suggests manufacturers return to fundamentals. Understanding how cash moves through a business – and how quickly – is becoming just as important as topline growth or profitability. The distinction between profit and cash, long understood but often underappreciated, is once again front of mind for finance leaders.

“There’s an old saying I learnt early in my career, Profit is an opinion, however cash is a fact,” said Tim Linke, partner at RSM Australia. 

“Businesses need to be really focused on what is actually real and alive in their balance sheet, rather than glossing over headline numbers.” 

The pressure points building across FY26

A key challenge for manufacturers lies in the accumulation of small inefficiencies that compound over time. Outstanding receivables, underutilised creditor terms and poorly timed capital expenditure erode liquidity when left unchecked. As businesses approach the end of the financial year, these issues tend to become more pronounced.

Linke points to the importance of regularly reviewing debtor books in detail, particularly the ageing of outstanding invoices. Identifying which debts are likely to be recovered – and which require escalation – can make a material difference to cash position. He said at the same time, businesses must assess whether they are making full use of available supplier terms.

This need for discipline is heightened by the likelihood of “lumpy” cashflow events. Capital expenditure, in particular, can place sudden strain on reserves if not carefully planned and sequenced within broader cashflow cycles, according to Linke. 

The ongoing impact of rising input costs and supply chain volatility continues to reshape working capital requirements across the sector. Many manufacturers are caught in a difficult position where pricing structures lag behind cost increases, compressing margins in the short term.

In some cases, contracts or market conditions limit the ability to pass on higher costs immediately. This creates a timing mismatch, where expenses rise faster than revenue, placing additional pressure on cash reserves. The result is often a tightening of working capital at precisely the moment when flexibility is most needed.

“You can get stuck in a cycle where your prices are fixed for a period, but your input costs are already moving,” Linke explained. 

“That margin squeeze hits straight away, so you have to be very focused on how you manage your working capital.”

Avoiding common working capital pitfalls

Despite the complexity of the current environment, many of the most common cashflow challenges stem from avoidable missteps. Businesses that pay suppliers earlier than necessary, or allow receivables to drift without active management, risk placing themselves on the wrong side of the working capital equation.

These decisions can have cascading effects. When unexpected costs arise, such as urgent capital expenditure, businesses may find themselves forced into reactive measures – including taking on debt at unfavourable terms or deferring strategic investments.

Linke emphasised that timing is critical. Aligning payable and receivable cycles more effectively can help businesses maintain liquidity and reduce the risk of being caught out by sudden cash demands. The objective is not to strain relationships, but to operate with greater precision and intent.

Managing supplier relationships with care

In an environment where every dollar counts, extending payment terms can be an attractive lever for improving cashflow. However, doing so without regard for supplier relationships can create longer-term risks. For manufacturers, many of whom rely on tightly integrated supply chains, collaboration remains essential.

The most effective approach, according to Linke, is proactive communication. Engaging suppliers early and openly about payment terms allows both parties to find workable solutions that reflect current conditions. This is important given that suppliers are often facing similar pressures.

“Get on the front foot and have the conversation,” he said. “Everyone is dealing with similar challenges, so it’s about finding a pragmatic, win-win outcome.”

Policy shifts and planning considerations

Beyond operational factors, a range of policy and regulatory changes are also shaping cashflow planning for the year ahead. Tax settings, superannuation requirements and government incentives all have implications for how manufacturers manage liquidity.

The Instant Asset Write-Off, for example, provided an opportunity for eligible businesses to bring forward deductions on assets under $20,000 for the 2025 financial year, before reverting to $1,000 from July 2025. While this can deliver short-term tax relief, it also removes the cost base for future calculations, with implications when assets are sold.

At the same time, changes to the treatment of ATO interest charges – which are no longer tax-deductible from July 2025 – increase the cost of falling behind on tax obligations. Coupled with a tightening stance on interest remission, this underscores the importance of timely payments and robust cashflow planning.

Preparing for structural change

Looking further ahead, structural shifts such as the introduction of ‘payday super’ from July 2026 will require adjustments to payroll processes and cashflow management. Moving from quarterly to near-immediate superannuation payments represents a change in timing, with direct implications for working capital.

Manufacturers will need to ensure their systems and processes are equipped to handle these changes. This may include reviewing payroll systems, adjusting pay cycles, and modelling the cashflow impact of more frequent outflows.

At the same time, broader global dynamics – including trade tensions, tariffs and currency volatility – continue to influence the operating environment. For manufacturers engaged in international markets, these factors add another layer of complexity to financial planning.

Leveraging support and incentives

While the challenges are significant, there are also opportunities for manufacturers to strengthen their position through targeted support and incentives. Government programmes, including the R&D Tax Incentive, can help offset the cost of innovation and investment in new technologies.

In addition, broader initiatives under the Federal Government’s Future Made in Australia plan are expected to drive investment in areas such as green manufacturing, critical minerals and renewables. For businesses able to align with these priorities, there may be access to funding and support mechanisms.

Linke notes that awareness is key. Many businesses fail to take advantage of available programmes because they are not actively monitoring or pursuing them. Engaging with advisers who specialise in grants and tax incentives can help bridge this gap.

The role of RSM in guiding manufacturers

For manufacturers seeking to navigate these challenges, advisory support can play a critical role. RSM Australia offers a range of services designed to address both immediate cashflow pressures and longer-term strategic planning.

From a grants perspective, the firm works with businesses to identify relevant funding opportunities and guide them through the application process. This can unlock additional capital at a time when liquidity is under pressure. Similarly, R&D tax advisory services help businesses determine which expenditures may be eligible for rebates or refunds.

Across its business advisory practice, RSM supports manufacturers in developing a clearer understanding of their working capital position. This includes analysing cashflow cycles, identifying inefficiencies and implementing processes to improve visibility and control.

Turning insight into action

A central component of RSM’s approach is helping businesses move beyond historical analysis to forward-looking decision-making. Through financial modelling and scenario planning, manufacturers can gain a clearer picture of how different variables may impact their cash position over time.

This is particularly valuable in an uncertain environment, where conditions can change rapidly. By modelling potential outcomes, businesses are better equipped to make informed decisions around investment, pricing and cost management.

“We’re helping clients understand what their future might look like, rather than just where they’ve been,” Linke said. “That allows them to make better decisions based on real information.”

Building a ‘useful’ budget

At the core of effective cashflow management is a robust budgeting process. RSM’s ‘Useful Budget’ framework is designed to go beyond traditional profit forecasting by integrating cashflow, strategy and performance metrics into a single, actionable plan.

This approach begins with defining clear goals and strategies, supported by historical data and a detailed understanding of business drivers. From there, a budget and cashflow forecast are developed, alongside key performance indicators to track progress.

Crucially, the process includes ongoing reporting and review, ensuring that businesses can respond quickly to changing conditions. By linking financial performance to strategic objectives, manufacturers gain greater control over both day-to-day operations and long-term direction.

From complexity to clarity

For many business owners, the prospect of detailed financial planning can be daunting. However, the alternative – operating without clear visibility over cashflow – carries greater risks, particularly in the current environment.

RSM’s collaborative approach aims to simplify the process, working closely with clients to identify priorities and translate data into practical insights. By combining technical expertise with an understanding of manufacturing, the firm seeks to provide clarity where it is most needed.

The outcome is not just improved financial management, but greater confidence in decision-making. With a clearer view of their cash position and future outlook, manufacturers are better placed to navigate uncertainty and seize opportunities as they arise.

Positioning for resilience and growth

As the new financial year begins, the message for manufacturers is clear: cashflow discipline is no longer optional. In a landscape defined by volatility and change, those who maintain tight control over working capital will be best positioned to withstand shocks and capitalise on emerging opportunities.

While external pressures may persist, the tools for managing their impact are firmly within reach. By focusing on fundamentals, leveraging available support and adopting a more strategic approach to financial planning, manufacturers can build resilience for the year ahead.

In the end, success across FY26 (and into FY2027) may come down to a simple principle – knowing where your cash is, where it is going, and how to make it work harder for your business.

This article was first published in the Manufacturers' Monthly