Working capital
In short. Working capital is the money a business has available to fund its day-to-day operations. It is usually measured as current assets, such as cash, stock and money owed by customers, minus current liabilities, such as bills and short-term debts due within a year.
Last checked against its sources on 10 October 2026. How we write these.
Working capital is the cushion between paying for things and being paid. A business that buys stock, pays staff and then waits 45 days for customers to settle needs enough working capital to bridge that gap.
The calculation is simple: current assets minus current liabilities. A positive figure suggests the business can meet its near-term obligations. A negative or shrinking figure is a warning, especially if it falls as sales grow, because growth often absorbs cash before it produces it.
Take a wholesaler who wins a large order. They must buy stock and pay suppliers up front, but the customer pays in 60 days. The order is good news on paper but could create a cash squeeze without enough working capital or a financing arrangement.
Ways to improve it include invoicing promptly, offering early payment incentives, reducing slow-moving stock and agreeing longer supplier terms. Many lenders offer finance specifically for working capital, so it helps to understand the number before applying.
Questions people ask
Is more working capital always better?
Not necessarily. Too much cash tied up in stock or unpaid invoices can be inefficient, though too little leaves the business exposed. The aim is enough to operate comfortably.
How is working capital different from cash flow?
Working capital is a snapshot of resources available at a point in time. Cash flow is the movement of money over a period.
Sources
- Working Capital Cycle – Corporate Finance Institute checked 10 October 2026