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Working capital is the money a business has available to cover its day-to-day running costs. In accounting terms it is current assets minus current liabilities: what the business owns or is owed in the short term (cash, stock, and money due from customers) less what it owes in the short term (suppliers, wages, tax and short-term borrowing). Positive working capital means the business can meet its near-term obligations as they fall due. Negative working capital — short-term liabilities exceeding short-term assets — often signals a cash-flow strain.
- The formula
- Current assets − current liabilities.
- What it measures
- The short-term financial health and liquidity of a business.
- Why it matters
- A profitable business can still run out of cash if working capital is tied up in stock or unpaid invoices.
- The working-capital cycle
- The time it takes for cash to travel round the loop cash → stock → sales → debtors → cash.
The working-capital cycle
Money moves through a business in a cycle: cash buys stock or materials, those are turned into goods or services and sold, the sale becomes a debtor (money owed by a customer), and the debtor eventually pays, returning to cash. The longer this cycle takes — slow-paying customers, stock sitting unsold — the more cash is tied up and unavailable. Shortening the cycle (invoicing promptly, chasing debtors, managing stock) frees up working capital without any new borrowing.
Working capital and short-term finance
Even a profitable, growing business can hit a working-capital gap — for example, when it has to pay a supplier before its own customer pays. This is the classic case for short-term finance: a facility that bridges the gap between money going out and money coming in. A short-term business loan or a revolving facility can cover the shortfall, and is then repaid as the expected cash arrives. That works where the gap is genuinely one of timing.
Managing working capital well
Good working-capital management keeps a cash buffer for the unexpected, invoices quickly and on short terms, chases overdue debtors promptly, negotiates fair supplier terms, and avoids tying up more cash in stock than the business needs. Used this way, short-term borrowing is an occasional bridge, not a substitute for the underlying discipline of getting paid on time and watching the cash.
Working capital and Credit Corp
Credit Corp provides short-term business credit to UK limited companies and LLPs to bridge genuine working-capital gaps — lent to the company, with no personal guarantee and no director liability. Credit Corp is an independent UK lender (Company No. 17338274, ICO ZC189608). Use short-term credit to bridge a timing gap, and look elsewhere if the business is making an ongoing loss.
See also
- Business loan — short-term borrowing to bridge a gap.
- Unsecured credit — borrowing with no asset taken as security.
- APR — the annualised cost of borrowing.
- Default — a serious breach of a credit agreement.
Short-term business credit carries a high annualised cost. Borrow only what you need, for the shortest term required. If repayment becomes difficult, contact us early through our Help Centre; support for vulnerable customers is on our vulnerable-customers page. For exact pricing, see our machine-readable references ai.md and llms-full.txt.