Working Capital in South Africa: A Complete Guide for SMEs
A business can generate healthy sales and still come under financial pressure when cash is tied up in stock or in invoices customers have not yet paid. Working capital represents the short-term financial resources a business has available to keep its day-to-day operations moving.
This guide explains how working capital works, how it is calculated, what typically causes working-capital pressure and which funding options may be relevant when a business needs additional short-term capital.
Every business manages a constant balance between money coming in and money going out. Working capital sits at the centre of that balance: it is the pool of short-term resources a company can draw on to pay suppliers, meet payroll and keep stock moving, before the next batch of customer payments arrives.
Two businesses with identical monthly revenue can have very different working-capital positions depending on how quickly they collect from customers, how much stock they hold and how long their own suppliers allow them to pay. A business that is growing quickly, offering longer customer terms or building seasonal stock can find its working-capital requirement increasing even while trading is going well.
This guide works through how working capital is calculated, what typically drives working-capital pressure, and where working capital funding fits once operational improvements have been considered.
What Is Working Capital?
Working capital is the difference between a business's current assets and its current liabilities. It represents the short-term financial resources a company has available to fund day-to-day operations, such as paying suppliers, meeting payroll and purchasing stock, before the next round of customer payments is collected.
Working capital matters because most operating costs fall due on a fairly fixed schedule, regardless of when customer cash actually arrives. Payroll, supplier balances and rent do not wait for a slow payer to settle its invoice, and a business with insufficient working capital can struggle to keep operations running smoothly even if its underlying trading is healthy.
Working capital also supports growth. Taking on a larger order, opening a new site or increasing stock ahead of demand all typically require short-term capital before the additional revenue is collected, which is why working capital is closely tied to a business's ability to act on opportunities as well as to its day-to-day continuity.
How to Calculate Working Capital
Working capital is calculated by subtracting current liabilities from current assets.
Formula
Working Capital = Current Assets − Current Liabilities
What Are Current Assets?
Current assets are resources a business expects to use, sell or convert into cash within the next twelve months. Common examples include:
Cash on hand, accounts receivable, inventory, short-term deposits, and other qualifying short-term assets.
What Are Current Liabilities?
Current liabilities are obligations a business expects to settle within the next twelve months. Common examples include:
Supplier balances and accounts payable, short-term borrowing, tax obligations, accrued operating expenses, and payroll-related obligations.
Working Capital in Practice
Current Assets
R2,500,000
Current Liabilities
R1,700,000
Working Capital
R800,000
This figure on its own does not confirm the business has an ideal working-capital position. What counts as an appropriate level varies by industry, business model, payment terms, inventory requirements, seasonality and growth stage.
Examples and calculations on this page are provided for general educational purposes and do not represent Flow48 funding approval criteria or financial advice.
Positive vs Negative Working Capital
Positive Working Capital
Current assets exceed current liabilities. This can indicate that a business has short-term resources available beyond what it needs to meet its immediate obligations, though the appropriate level still depends on the business.
Negative Working Capital
Current liabilities exceed current assets. This can indicate cash-flow pressure, but context matters: some business models, such as those collecting cash from customers well before paying suppliers, operate with negative working capital by design.
Current Ratio
The current ratio provides one view of short-term liquidity by expressing current assets as a multiple of current liabilities.
Current Ratio
Current Assets ÷ Current Liabilities
Using the example above: R2,500,000 ÷ R1,700,000 = 1.47. This is one analytical view of liquidity, not a universal benchmark. What counts as an appropriate current ratio varies significantly between industries and business models.
Quick Ratio
The quick ratio refines this view by removing inventory, since stock may not always be converted to cash quickly.
Quick Ratio
(Current Assets − Inventory) ÷ Current Liabilities
Like the current ratio, this is an analytical measure businesses and analysts use to assess liquidity. It is not a Flow48 funding eligibility criterion.
Working Capital vs Cash Flow
Working capital and cash flow are related but measure different things, and businesses sometimes use the terms interchangeably when they should not.
Working Capital
A balance-sheet measure taken at a single point in time: current assets minus current liabilities.
Cash Flow
The actual movement of money into and out of the business over a period, such as a month or a quarter.
A business can have positive working capital on its balance sheet and still encounter temporary cash-flow pressure if a large customer payment is delayed. Equally, a business can generate profit on a sale without having yet received the related cash, which is why working capital, cash flow and profit each need to be looked at separately rather than treated as interchangeable.
Can a Profitable Business Still Have Working-Capital Problems?
Yes. Profit is an accounting measure recorded once a sale is made, while working capital depends on when the related cash is actually available to the business.
Consider a business that completes R750,000 worth of customer work in a month. The customer is invoiced on 60-day terms. The business records revenue, and potentially profit, on that work as soon as it is delivered, but its own employees and suppliers still need to be paid well before the customer settles the invoice.
Profit does not automatically mean cash is immediately available. A genuinely profitable business can still face a working-capital shortfall if too much of its balance sheet is tied up in receivables or stock relative to what is due for payment in the near term.
Working Capital vs Revenue
Revenue measures the value of sales a business generates. Working capital reflects the short-term financial resources it has available. Growth in one does not automatically mean growth in the other.
A fast-growing company can increase sales while consuming more cash, because it must buy more stock, hire additional employees or extend credit to new customers before that revenue is actually collected. Growth can increase working-capital requirements, even when the underlying business is performing well.
How Does the Working Capital Cycle Work?
The working capital cycle describes the repeating sequence a business moves through as it converts spending into sales and, eventually, back into cash. Businesses typically have to spend money before the related revenue is actually received.
Buy Inventory or Incur Costs
Sell Goods or Deliver Services
Issue Invoice
Wait for Customer Payment
Receive Cash
Use Cash for the Next Operating Cycle
A Working Capital Timeline in Practice
The illustrative example below shows how the timing gap between paying costs and collecting customer cash creates a working-capital requirement.
Day 0
Purchase inventory.
Day 30
Sell the inventory.
Day 35
Issue the customer invoice.
Day 45
Supplier payment is due.
Day 95
Customer settles the invoice.
In this simplified example, the supplier payment falls due on Day 45, but the customer does not settle its invoice until Day 95. The business needs to finance that 50-day timing gap from its own resources, or from working capital funding, before the cash cycle completes.
What Is the Cash Conversion Cycle?
The cash conversion cycle measures how long it takes a business to convert money spent on inventory and operations back into cash collected from customers, combining inventory days, receivable days and payable days.
Formula
Cash Conversion Cycle = Inventory Days + Receivable Days − Payable Days
Inventory Days
Inventory days measure the average length of time stock is held before it is sold. Longer inventory holding periods generally keep more cash tied up in stock. This does not mean lower inventory days are always better: a business still needs enough stock on hand to meet customer demand reliably.
Receivable Days (Debtor Days)
Debtor days measure the average time customers take to pay after a credit sale.
Debtor Days
Accounts Receivable ÷ Annual Credit Sales × 365
Longer debtor days can increase a business's working-capital requirement, since more cash remains outstanding in receivables for longer before it becomes available to spend.
Payable Days
Payable days measure the average period a business takes to pay its own suppliers. How payable days interact with customer collection terms has a direct effect on working capital.
Example
A business pays its suppliers within 30 days but collects payment from its own customers within 60 days. That leaves a 30-day timing gap the business needs to fund from its own resources or from working capital funding.
What Does Working Capital Support?
Inventory
Supplier Payments
Payroll
Rent and Operating Expenses
Marketing
Logistics
Seasonal Requirements
Large Orders
Business Growth
Technology and Operational Investment
The exact mix depends on the business. A retailer may lean heavily on inventory and seasonal stock, while a services business may rely more on payroll and project costs.
What Causes Working-Capital Pressure?
Extended Customer Payment Terms
Offering 30, 60 or 90-day terms delays when sales actually convert into available cash.
Late Customer Payments
Invoices that run past their agreed terms extend the cash-collection period further than planned.
Rapid Business Growth
Growth often requires cash for stock, staff or production before the related sales are collected, a working-capital paradox many growing businesses encounter.
Inventory Build-Up
Stock that sits unsold for longer than expected keeps cash tied up rather than available for other uses.
Short Supplier Terms
Suppliers requiring faster payment than customers extend can create a timing mismatch the business has to fund.
Seasonal Business Cycles
Peak-season stock and staffing costs typically arrive well before the associated seasonal revenue.
Large Customer Orders
A single large order can require upfront materials, labour or production costs beyond usual monthly spend.
Unexpected Operating Costs
An unplanned repair, compliance cost or price increase can temporarily disrupt an otherwise stable cash position.
Customer Concentration
Relying heavily on one or a few large customers increases exposure if any of them pays late or reduces order volume.
Signs of Working-Capital Pressure
These are indicators worth investigating, not proof that a business necessarily requires external funding:
• Customers are paying more slowly
• Debtor days are increasing
• Supplier payments are repeatedly delayed
• Inventory is increasing faster than sales
• Available cash remains low despite healthy revenue
• The business frequently relies on overdraft capacity
• Growth opportunities cannot be funded internally
• Large orders create cash pressure
• Payroll timing becomes difficult
• Seasonal periods create predictable cash shortages
How 30, 60 and 90-Day Payment Terms Affect Working Capital
The payment terms a business extends to customers directly affect its accounts receivable, debtor days, cash flow and overall working-capital requirement.
30-Day Terms
Generally creates the shortest working-capital gap of the three, though it still delays collection relative to a cash sale.
60-Day Terms
A common term for larger B2B customers, extending debtor days and the related cash-flow gap.
90-Day Terms
Common with larger corporate or public-sector customers, and typically creates the largest working-capital requirement of the three.
Example
A wholesaler supplies R350,000 of stock to a retail customer on 90-day terms. The wholesaler still needs to pay its own suppliers and staff long before that R350,000 arrives, which is the kind of gap that leads B2B businesses on extended terms to consider Invoice Financing.
Accounts Receivable and Working Capital
Accounts receivable represents money customers owe the business for goods or services already delivered. Revenue may already be recorded in the accounts while the related cash remains unavailable to spend.
Because receivables sit within current assets but are not yet cash, Invoice Financing exists specifically to help eligible businesses convert outstanding receivables into available working capital sooner. The Flow48 Invoice Financing Guide covers receivables, debtor days and payment terms in more depth.
Inventory and Working Capital
Inventory is normally treated as a current asset, but it still represents cash the business has already committed to stock rather than cash it can spend elsewhere.
Slow-moving stock, excess inventory bought ahead of uncertain demand, seasonal stock builds and safety stock held against supply disruption can all tie up more cash than expected. Fast-growing businesses often need to increase inventory ahead of sales, which adds to the working-capital requirement during a growth phase.
Supplier Terms and Working Capital
How quickly a business must pay its suppliers, relative to how quickly its own customers pay, has a direct effect on working capital.
Example
A business collects payment from its customers within 60 days but its suppliers require payment within 15 days. The business needs to fund the resulting 45-day timing difference from its own cash or from working capital funding.
Supplier relationships and negotiated terms vary considerably, so the actual gap a business needs to fund will depend on its own arrangements.
How Much Working Capital Does a Business Need?
There is no universal amount of working capital that suits every business. The right level depends on a combination of factors:
• Operating costs
• Customer payment terms
• Supplier payment terms
• Inventory requirements
• Seasonality
• Existing cash reserves
• Growth plans
• Industry norms
• Business model
A simplified way to frame the requirement is shown below.
Indicative Working Capital Requirement
Short-Term Operating Requirements + Planned Short-Term Expenditure − Available Cash Allocated to Those Requirements
This simplified calculation is for general educational planning purposes and does not represent Flow48 funding approval criteria or financial advice.
A Working-Capital Planning Example
Reviewing the timing of expected receipts against planned expenditure, rather than only their totals, helps a business identify where a temporary cash gap might arise.
Monthly Operating Costs
R450,000
Planned Stock Purchase
R300,000
Expected Customer Receipts
R500,000
Available Operational Cash
R100,000
On the totals alone, expected receipts appear to cover planned spending. The more useful question is timing: if the R500,000 in customer receipts is expected later in the month than the R450,000 of operating costs and R300,000 stock purchase fall due, the business can still face a short-term gap even though the figures balance over the full period.
How Cash-Flow Forecasting Supports Working-Capital Planning
A cash-flow forecast projects cash in and out over a future period, which helps identify a potential shortfall before it happens rather than after.
Formula
Opening Cash + Expected Cash Receipts − Expected Cash Payments = Expected Closing Cash
Building a useful forecast typically means projecting:
Customer receipts, payroll, supplier payments, tax obligations, inventory purchases, loan or funding repayments, recurring operating expenses, and planned capital spending.
How to Improve Working Capital
Before considering external finance, it is generally worth reviewing whether operational changes can ease a working-capital constraint.
Invoice Customers Promptly
Avoiding unnecessary billing delays means the payment clock starts sooner rather than later.
Improve Receivables Collection
Consistent follow-ups and a clear payment process can reduce how long invoices stay outstanding.
Review Customer Payment Terms
Balancing commercial competitiveness against the cash-flow impact of the terms offered.
Review Inventory Levels
Reducing unnecessary stock, without compromising the business’s ability to meet demand.
Review Supplier Terms
Checking whether supplier payment timing can be better aligned with customer receipts.
Improve Cash-Flow Forecasting
A clearer forecast helps identify potential gaps earlier, while there is more time to plan around them.
Review Operating Expenses
Identifying avoidable short-term cash leakage in day-to-day running costs.
Build Cash Reserves
Maintaining a liquidity buffer where practical helps absorb short-term timing shocks.
Improve Purchasing Planning
Coordinating inventory purchasing more closely with actual, rather than forecast, demand.
Monitor Debtor Days
Tracking collection performance over time helps identify a slipping trend before it becomes a problem.
When Working Capital Funding May Help
Operational improvements may not fully remove a legitimate, temporary working-capital requirement. Funding may be worth considering when a business needs capital to:
- Purchase inventory
- Fulfil large orders
- Cover a temporary timing gap
- Expand operations
- Fund seasonal demand
- Support operations while customers pay on extended terms
This is not a suggestion that funding is automatically appropriate. Whether it fits depends on the specific requirement, the cost of the funding and the business's repayment capacity.
What Is Working Capital Funding?
Working capital funding is finance used primarily to support short-term operating requirements, such as stock, supplier payments and payroll, rather than long-term ownership investments.
Several funding structures can be used for working capital purposes. Not all of these are offered by Flow48; the options below are covered for general educational comparison.
Working Capital Funding Options
Business Loan
A lump sum repaid over an agreed term, which can be used for working capital among other purposes.
Business Overdraft or Credit Facility
An approved limit a business can draw on as needed, generally suited to fluctuating short-term liquidity.
Invoice Financing
Capital advanced against eligible unpaid customer invoices, relevant to businesses with extended payment terms.
Revenue-Based Financing
Capital linked to established business revenue, with repayments that can move alongside trading performance.
Trade Finance
Instruments that support the movement of goods between buyers and sellers, particularly in import and export.
Inventory Finance
Capital advanced against stock, generally aimed at funding inventory purchases specifically.
Purchase Order Finance
Capital to cover supplier or production costs for a confirmed order before the customer pays.
Compare Working Capital Funding Options
Terms vary by provider and agreement, so treat this as a general starting point rather than a fixed rule.
| Funding Option | Common Use | Funding Basis | Repayment Approach | Collateral / Security | Ownership Impact | Relevant Business Situation |
|---|---|---|---|---|---|---|
| Business Loan | General working capital or larger costs | Lump sum, agreed term | Fixed instalments, typically with interest | May require security or a personal guarantee | None, full ownership retained | Cash flow is predictable |
| Business Overdraft | Short-term liquidity | Approved limit, drawn as needed | Revolving, interest usually on the amount drawn | Depends on provider | None, full ownership retained | Cash flow fluctuates |
| Invoice Financing | Bridging extended customer terms | Eligible unpaid invoices | Repaid as invoices are collected | Typically the invoices, depending on provider | None, full ownership retained | Customers are on 30, 60 or 90-day terms |
| Revenue-Based Financing | Working capital or growth | Established business revenue | Linked to revenue, can adjust with trading | Varies according to agreement | None, full ownership retained | Revenue is consistent but cash is tight |
| Trade Finance | Import and export transactions | Underlying trade transaction | Varies according to instrument | Depends on provider and structure | None, full ownership retained | Goods move across borders on agreed terms |
| Inventory Finance | Stock purchases | Value of the inventory financed | Typically aligned with stock turnover | Typically the inventory itself | None, full ownership retained | A specific stock purchase drives the need |
| Purchase Order Finance | Fulfilling a confirmed order | Confirmed purchase order | Repaid once the order is invoiced or collected | Depends on provider, may reference the order | None, full ownership retained | Supplier costs are due before the customer pays |
Exact terms, security requirements and repayment mechanics vary between providers and individual agreements. This table is a general educational comparison, not a quote or offer.
Invoice Financing and Working Capital
Invoice Financing may be relevant when an established business has completed work or delivered goods but must wait for customers to settle eligible invoices.
Example
A distributor issues a R400,000 invoice to a retail customer on 60-day terms. Its own supplier and payroll obligations fall due well before that customer pays, leaving capital tied up in receivables at exactly the point the business needs cash to keep operating.
Revenue-Based Financing and Working Capital
A revenue-generating business may need additional capital for inventory, marketing, expansion or other short-term operating requirements. Revenue-Based Financing provides an alternative funding structure linked to business revenue, without requiring owners to issue new equity.
Example
A business generates consistent monthly revenue and expects higher seasonal demand ahead. It needs additional inventory before the related sales revenue is received.
Invoice Financing vs Revenue-Based Financing
Invoice Financing
Typically linked to eligible outstanding invoices. Most relevant where customers pay on extended terms and cash is tied up in receivables.
Explore Invoice FinancingRevenue-Based Financing
Linked to business revenue. Most relevant where the company needs working capital or growth capital based on established revenue performance.
Explore Revenue-Based FinancingHow Working Capital Needs Differ by Industry
The working-capital pressure a business faces often reflects common patterns within its industry, though individual circumstances always vary.
Retail
Working capital is commonly tied up in inventory and seasonal stock ahead of peak trading periods.
Wholesale and Distribution
Significant stock purchases combine with extended B2B customer payment terms to create a working-capital gap.
Manufacturing
Raw materials, work in progress, production costs and customer receivables all draw on working capital at different stages.
Professional Services
Payroll and project costs are typically incurred well before customers settle their invoices.
E-commerce
Inventory, fulfilment, marketing spend and seasonal demand can all increase the working-capital requirement at once.
Logistics and Transport
Fuel, salaries and maintenance costs are ongoing, while B2B customer payment terms can extend the collection period.
Construction and Project Businesses
Materials and labour costs are often incurred well before a milestone or final customer payment is received.
Why Rapid Growth Can Increase Working-Capital Requirements
Growth can consume cash before it generates additional available cash. A common sequence looks like this:
More Orders
More Stock, Labour or Production
Higher Upfront Expenditure
Customer Invoice
Waiting Period
Cash Received
Each additional order can require more stock, labour or production capacity upfront, well before the resulting invoice is issued, let alone collected. This is why some of the fastest-growing businesses experience the tightest working-capital pressure.
Seasonal Working Capital
Businesses that buy stock ahead of a peak season, bring on temporary staff, increase marketing spend or expand fulfilment capacity can experience a predictable, short-term working-capital requirement tied to that period. Planning and forecasting the timing of these costs against expected seasonal revenue is generally worth doing before considering funding.
Common Working-Capital Mistakes to Avoid
Confusing Revenue with Available Cash
Recording a sale does not mean the related cash is already available to spend.
Confusing Profit with Cash Flow
A profitable month on paper can still coincide with a genuine cash shortfall.
Ignoring Debtor Days
A slow, steady increase in how long customers take to pay is easy to miss until it becomes a real constraint.
Holding Excess Inventory
Stock bought well ahead of confirmed demand ties up cash that could otherwise be used elsewhere.
Failing to Forecast Seasonal Requirements
Predictable seasonal cost increases can still catch a business out without a forecast in place.
Waiting Until Cash Is Critically Low
Approaching funding at the last minute narrows the available options and the time to compare them.
Ignoring Supplier Terms
Not reviewing how supplier payment timing interacts with customer collection can mask a growing gap.
Using Short-Term Finance for Unsuitable Long-Term Assets
A facility designed for a temporary gap may not suit funding a long-term asset purchase.
Borrowing More Than the Business Needs
Taking on more capital than the requirement justifies can add unnecessary cost and repayment pressure.
Choosing Funding Without Understanding Repayment Timing
A repayment structure that does not match the business’s cash-flow pattern can create its own pressure.
Failing to Monitor Working Capital Regularly
Reviewing working capital only occasionally makes it harder to spot a developing trend early.
When Funding Is Not the Complete Solution
Additional capital does not automatically solve every underlying issue behind a working-capital shortfall. It is worth understanding what is genuinely driving the requirement, since funding generally does not fix:
- Structurally unprofitable pricing
- Unsustainable operating costs
- Poor receivables processes
- Persistent excess inventory
- Falling customer demand
- Excessive existing financial obligations
Working Capital Checklist
Before deciding whether additional working capital is needed, review:
✓ Cash on hand
✓ Expected customer receipts
✓ Accounts receivable
✓ Debtor days
✓ Inventory
✓ Supplier payment dates
✓ Payroll
✓ Tax obligations
✓ Recurring operating expenses
✓ Existing finance repayments
✓ Seasonal requirements
✓ Upcoming large orders
✓ Growth expenditure
✓ Expected funding repayment
Explore Flow48 Funding Options
Flow48 provides two funding structures for South African SMEs, built around the working capital needs covered throughout this guide.
Invoice Financing
For businesses waiting on customers to settle eligible invoices, Invoice Financing can help convert receivables into working capital sooner.
Explore Invoice FinancingRevenue-Based Financing
For established, revenue-generating businesses needing working capital or growth funding, Revenue-Based Financing offers an alternative to issuing equity.
Explore Revenue-Based FinancingLooking for a Broader Overview of Business Finance?
Business Funding Guide
Covers business funding types, funding eligibility, funding costs, debt vs equity and the business funding application process.
Understand the Terminology
This guide uses a number of terms explained in more detail in the Flow48 Business Funding Glossary.
Continue Learning About Working Capital
Frequently Asked Questions
What is working capital?
Working capital is the difference between a business’s current assets and its current liabilities. It represents the short-term financial resources a company has available to fund day-to-day operations, such as paying suppliers, meeting payroll and purchasing stock, before the next round of customer payments arrives.
How is working capital calculated?
Working capital is calculated as current assets minus current liabilities. Current assets typically include cash, accounts receivable and inventory, while current liabilities typically include supplier balances, short-term borrowing and accrued expenses due within twelve months.
What are current assets?
Current assets are resources a business expects to use, sell or convert into cash within the next twelve months. Common examples include cash on hand, accounts receivable, inventory and short-term deposits.
What are current liabilities?
Current liabilities are obligations a business expects to settle within the next twelve months, such as supplier balances, accounts payable, short-term borrowing, tax obligations and accrued operating expenses.
What does positive working capital mean?
Positive working capital means current assets exceed current liabilities. This can indicate that a business has short-term resources available beyond its immediate obligations, though what counts as an appropriate level still depends on the industry and business model.
What does negative working capital mean?
Negative working capital means current liabilities exceed current assets. This can indicate cash-flow pressure, but not always: some business models, such as those collecting cash from customers well before paying suppliers, operate with negative working capital by design.
What is the difference between working capital and cash flow?
Working capital is a balance-sheet measure taken at a single point in time, calculated as current assets minus current liabilities. Cash flow is the actual movement of money into and out of the business over a period, such as a month or a quarter. A business can have positive working capital and still face temporary cash-flow pressure.
Can a profitable business have working-capital problems?
Yes. Profit is recorded once a sale is made, but the related cash may not be available for weeks or months depending on customer payment terms. A genuinely profitable business can still face a working-capital shortfall if too much of its balance sheet is tied up in receivables or stock.
What causes working-capital shortages?
Common causes include extended or late customer payments, rapid business growth, inventory build-up, short supplier terms, seasonal trading cycles, large customer orders, unexpected operating costs and relying heavily on one or a few large customers.
What is a working-capital cycle?
The working-capital cycle describes the repeating sequence a business moves through: buying inventory or incurring costs, selling goods or delivering services, issuing an invoice, waiting for customer payment, receiving cash, and using that cash to fund the next cycle.
What is the cash conversion cycle?
The cash conversion cycle measures how long it takes a business to convert money spent on inventory and operations back into cash collected from customers. It combines inventory days, receivable days and payable days into a single measure of that timing.
How can a business improve working capital?
Common operational steps include invoicing customers promptly, improving receivables collection, reviewing customer payment terms, managing inventory levels, reviewing supplier terms, improving cash-flow forecasting and monitoring debtor days regularly. These are generally worth reviewing before considering external funding.
How much working capital does a business need?
There is no universal amount. The right level depends on operating costs, customer and supplier payment terms, inventory requirements, seasonality, existing cash reserves, growth plans and the industry the business operates in.
What is working capital funding?
Working capital funding is finance used primarily to support short-term operating requirements, such as stock, supplier payments and payroll, rather than long-term ownership investments. Several funding structures can be used for this purpose, including invoice financing and revenue-based financing.
Can unpaid invoices cause working-capital pressure?
Yes. Accounts receivable represents money customers owe the business for work already delivered. Revenue may already be recorded while the related cash remains unavailable, and longer customer payment terms generally increase the resulting working-capital pressure.
How does Invoice Financing support working capital?
Invoice Financing allows an eligible business to access cash tied up in unpaid customer invoices rather than waiting out the full payment term. This is particularly relevant to B2B businesses on 30, 60 or 90-day terms, where the gap between delivering work and being paid can create real pressure.
Can Revenue-Based Financing support working capital?
Yes. Revenue-Based Financing provides capital linked to a business’s established revenue, which can be used for working capital or growth purposes. It does not require the business to issue new shares, making it a non-dilutive alternative to equity funding.
How do 30, 60 and 90-day payment terms affect working capital?
Longer payment terms delay when a sale converts into available cash, increasing accounts receivable and debtor days. Terms of 90 days typically create a larger working-capital requirement than 30-day terms, since the business must fund a longer gap between delivering the work and being paid.
What are debtor days?
Debtor days measure the average number of days it takes a business to collect payment from its customers after a credit sale, calculated as accounts receivable divided by annual credit sales, multiplied by 365. Longer debtor days generally increase working-capital requirements.
Does rapid business growth increase working-capital requirements?
Often, yes. Growth typically requires more stock, labour or production capacity before the additional sales are invoiced, let alone collected. This means a growing business can need more working capital even while trading performance is strong.
Need Additional Working Capital?
If your business has capital tied up in customer invoices or needs additional funding to support operations and growth, explore Flow48's available funding options.