Working capital
The money a business needs to run day to day: what it has tied up in stock and unpaid sales, less what it owes in the short term.
What it means in business
Working capital is current assets (cash, stock, money owed by customers) less current liabilities (money owed to suppliers and short-term loans). A business that is growing needs more of it because it buys materials and makes goods before customers pay.
Example
A factory buys steel, makes parts over a month and gives customers 60 days to pay. It must fund about three months of costs before cash comes in, which is why a large order can strain it. This is an illustration of normal business use rather than a quoted case study.
How to use it correctly
Watch how long cash is tied up in stock and unpaid sales, collect on time, and plan for the funding a larger order needs, such as a working capital limit from a bank, before taking it on.
Common confusion
Working capital is not profit: a business can be profitable and still run short of cash. And it is not the same as the cash balance in the bank.
Related glossary terms
Written on 24 October 2026 for lamp. Confirm the current rules with the official source or an adviser before relying on it.