AFO · Glossary
Working Capital
Current assets less current liabilities — the cash tied up in the business's day-to-day operations.
What this term means in practice
Working capital is current assets less current liabilities — the cash effectively tied up in the day-to-day operation of the business. Receivables and inventory are funded; payables to suppliers are a partial offset. Net working capital is positive when AR + inventory exceeds AP; the bigger the positive number, the more cash the business is committing to operations.
The cash conversion cycle — days sales outstanding plus days inventory outstanding less days payable outstanding — is the timing dimension. A business with a 90-day cash conversion cycle effectively self-finances three months of operations; double the revenue and you double the absolute working-capital requirement, regardless of profitability.
Most working-capital problems aren't profitability problems — they're timing problems. The right financing structure (an ABL revolver, a factoring line, an RBF facility) breathes with the cycle: it draws up when AR builds, pays down when cash lands. A fixed term loan funding working capital is usually the wrong structure; the business keeps paying interest on capital that's no longer needed once collection lands.
Where this matters in the catalog
Programs that turn on Working Capital.
ABL Revolver (Asset-Based Lending)
Revolving line tied to eligible receivables and inventory. Scales with the business.
Invoice Factoring & AR Finance
Immediate cash against outstanding receivables. Suits B2B businesses with long DSO.
Revenue-Based Financing (RBF)
Capital advanced against future monthly revenue, repaid as a fixed % of sales.
See also
Related glossary terms.
- Glossary
- Glossary
- Glossary
Where the definition meets your situation.
The CPA can walk through how this concept applies to your business in twenty minutes — what providers will ask, where the negotiation matters, what the trade-offs actually look like in your numbers.