Working capital is the lifeblood of daily operations — it funds inventory, receivables and short-term obligations. Poor working-capital management is a leading cause of business failure even for profitable firms.
This guide explains working capital and how to manage it.
What is working capital?
Working capital = current assets − current liabilities. Positive working capital means the business can cover its short-term obligations.
Managing it means optimising the operating cycle — how quickly inventory and receivables convert to cash relative to when payables are due.
Levers to improve working capital
- Collect receivables faster
- Negotiate longer payables terms
- Reduce excess inventory
- Use working-capital finance (CC/OD) for gaps
Frequently asked questions
How is working capital calculated?
Current assets minus current liabilities.
Why is working capital important?
It funds day-to-day operations; a shortfall can leave even a profitable business unable to pay its bills.