What is working capital and why does it matter?

2 min read

CA − CLHow it's calculated

Day-to-dayFunds operations

PositiveBills paid on time

What it means

Working capital is the difference between current assets (cash, stock, money owed by customers) and current liabilities (suppliers, tax, short-term debt). It is the buffer that funds the gap between paying for goods and being paid by customers — the working-capital cycle. A company can be profitable on paper and still fail if that buffer runs dry.

Why it matters for your company

Growth eats working capital: more sales mean more stock and more unpaid invoices before the cash comes in. That is why overtrading sinks growing firms. Size the gap with the working-capital calculator, forecast it with a cash-flow forecast, and bridge a temporary shortfall with a revolving facility rather than a long-term loan.

What it means for you

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See business loans or apply online.

Frequently asked questions

What is a negative working capital position?

It means current liabilities exceed current assets. Some cash-generative businesses (like retailers paid instantly but paying suppliers on terms) run this deliberately, but for most firms it is a warning sign to watch.

How do I improve working capital?

Shorten debtor days, negotiate longer supplier terms, hold less slow-moving stock, or add a short-term facility to smooth the gap. Cutting stock and chasing invoices usually costs nothing.