Definition
Working capital measures the funds a business can use to keep trading: roughly what it holds in cash, debtors and inventory, less what it must pay soon to suppliers and short-term lenders. A business with healthy working capital can pay its bills as they fall due. Growth, slow-paying customers and stock build-ups can all absorb working capital even when the business is profitable.
Working capital carries a business through the gap between spending money and collecting it.
How it is measured
A simple measure is current assets minus current liabilities. Owners often focus on its moving parts instead: how long stock sits, how long customers take to pay and how long you take to pay suppliers. Together these make up the working capital cycle.
Why it runs short
Growth needs more stock and creates more unpaid invoices at once. Seasonal peaks require buying ahead. Slow-paying customers stretch the cycle. All of these absorb cash even when sales are strong.
Funding it
Revolving facilities, invoice finance and trade finance are designed for working capital. Our working capital loans review explains the options, and the cash flow gap calculator sizes the need. To explore funding, make one enquiry.
Common questions
Can a profitable business have a working capital shortage?
Yes. Your accounts book a sale straight away, yet the money can take weeks to land. Growth can tie up more cash in stock and receivables.
What finance funds working capital?
Lines of credit, overdrafts, invoice finance, trade finance and short-term loans are common choices.
Sources and further reading