Working capital
Working capital is current assets minus current liabilities, but the number that matters day to day is how long cash stays tied up between paying suppliers and getting paid. Shorten that cycle and you need less outside money.
Days your customers take to pay + days inventory sits − days you take to pay suppliers = days your cash is tied up.
If customers pay in 45 days, inventory sits for 30 and you pay suppliers in 20, the cycle is 45 + 30 − 20 = 55 days. For those 55 days, the business is financing its own sales.
Illustrative only. A distributor with $1,200,000 in annual sales brings in about $3,288 a day on average ($1,200,000 ÷ 365).
Cutting the time customers take to pay from 45 to 35 days frees about $32,877 of cash (10 × $3,288) without borrowing anything. Stretching supplier terms from 20 to 30 days has a similar effect on the other side of the cycle.
Fictional business; uses sales rather than cost of goods for simplicity.
Your cash conversion cycle
Calculated in your browser; nothing is sent.
Borrowing makes sense when the cycle is already tight and growth or seasonality creates a gap you can name and date: a large order that needs materials before the customer pays, a seasonal stock-up, or payroll during a predictable slow stretch. It makes less sense when the gap is permanent, because a short-term product will just recreate the gap when it is repaid.
Compare structures in working capital loans and business lines of credit. Merchant Fund Express works from a 500 credit score, with same-day decisions and funding typically the next business day after signing.
One Merchant Fund Express application is matched with multiple funders, so you can compare net cash, total payback and payment schedule before you choose. Credit from 500, better credit gets better offers; same-day decisions; funding typically the next business day after signing.
It depends on the industry. The useful comparison is your own cycle month over month: a shrinking cycle means less cash is tied up.
No. Working capital is current assets minus current liabilities. Cash is only one current asset, alongside receivables and inventory.
It adds available cash, but the draw is also a liability. It helps most when it covers a temporary gap that the cycle will close.
Usually within one or two billing cycles, since the effect shows as soon as customers start paying sooner.
Generally not. A short-term product repaid from the same cash flow tends to recreate the gap.
Same-day decision. Applying takes a few minutes and will not affect your credit score.
