What is working capital?
Working capital is the difference between a business’s current assets and its current liabilities. Current assets are the things that turn into cash within a year: the cash itself, the stock, the money customers owe. Current liabilities are the amounts due within a year: suppliers, VAT and PAYE, the next twelve months of loan instalments, an overdraft. A business with more current assets than current liabilities has positive working capital; one with less is relying on its creditors to fund its trading.
The figure matters less than the cycle behind it. A business buys stock or pays wages, does the work, invoices, and waits to be paid. The days between paying out and being paid are the working capital cycle, and the longer it is, the more cash the business needs to carry it. Working capital finance exists to fund that gap; what it cannot do is fund a business that is losing money every month.
The working capital cycle
Three measures describe it, each read from the accounts. Debtor days: how long, on average, customers take to pay. Stock days: how long stock sits before it is sold. Creditor days: how long the business takes to pay its own suppliers. The cycle is debtor days plus stock days less creditor days, and the result is the number of days of trading the business has to fund from its own cash. A groundworks contractor paid on 60-day terms who pays its crew weekly funds eight weeks of wages before the first invoice is settled. A shop that is paid at the till and pays suppliers monthly has a negative cycle and its suppliers fund it.
How to read your own figure
Take the balance sheet in the last filed accounts or the management accounts. Add the cash, the trade debtors and the stock. Subtract the trade creditors, the tax due, the overdraft and the loan instalments due within a year. The result is the working capital at that date. Then look at the movement: a figure that is falling while turnover rises means the business is growing faster than its cash, which is the pattern that sends profitable businesses to a lender. The same arithmetic, done every month, shows the gap opening and closing, which is what a lender reads in the bank statements.
Late payment and the law
Where the gap is caused by customers paying late, the Late Payment of Commercial Debts (Interest) Act 1998 gives a business the right to charge statutory interest on a late commercial debt at 8 percentage points above the Bank of England base rate, plus a fixed sum towards recovery costs, unless the contract provides its own remedy. Few businesses charge it to a customer they want to keep, but the right exists, and a credit control process that invoices promptly and chases on the due date shortens the cycle without borrowing a pound.
Where finance fits
Working capital finance funds the cycle rather than a purchase. The structures differ in how they are drawn and repaid: a term loan is a fixed sum repaid in instalments; a revolving credit facility is a limit drawn and repaid as the gap opens and closes; invoice finance advances against the invoices themselves and rises and falls with the ledger; an overdraft is the bank’s own limit on the current account, repayable on demand. Each carries its own cost and its own terms; we show what each lender provides so you can compare them, and which structure a business uses is its own decision.
We have access to a range of UK commercial finance lenders through our principal, White Rose Finance Group Limited. We work with UK limited companies and LLPs only, for business and commercial purposes. Enquiring does not affect your credit score. If you apply to a lender, it runs its own credit search, which may be recorded on your file.
What finance cannot fix
A business whose outgoings exceed its income every month does not have a working capital gap; it has a loss, and a facility drawn to cover it runs out with the loss still there. A lender reads the bank statements for the difference: a balance that dips and recovers each month is a cycle, a balance that trends downwards is a loss. The honest first step is to work out which the business has, because the answer decides whether finance helps or delays the conversation that has to happen anyway.
Frequently asked questions
What is a good working capital ratio?
The current ratio is current assets divided by current liabilities. A ratio above one means the business can meet its liabilities from assets that turn into cash within the year. What counts as healthy differs by trade: a retailer paid at the till runs on a lower ratio than a contractor paid on 60-day terms. Compare the figure with the business’s own history before comparing it with anyone else.
Is working capital the same as cash flow?
No. Working capital is a position at a date: current assets less current liabilities. Cash flow is the movement of money over a period. A business can show positive working capital and still run out of cash if its debtors pay late and its stock does not sell.
What is a working capital loan?
A term loan taken to fund the cycle rather than to buy an asset: a fixed sum repaid in instalments, usually unsecured and usually with a personal guarantee from the directors. The working capital finance page sets it beside the flexible structures.
Does enquiring affect my credit score?
Enquiring does not affect your credit score. If you apply to a lender, it runs its own credit search, which may be recorded on your file.
Is CapExpand regulated?
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. If you have a complaint, our complaints page explains how it is handled.
How is CapExpand paid?
We will receive commission from lenders. On some cases we also charge a fee, which we set out in writing and agree with you before you proceed.
More funding questions answered
- What is an early repayment charge?The sum a lender charges if a loan is repaid before a date in the agreement, how it is calculated, and how it differs from an exit fee and a minimum interest period.
- What is a director’s loan?Money passing between a company and a director outside salary, dividends and expenses, in either direction: what the Companies Act requires and how a lender reads the balance.
- What do lenders look for in a business loan application?The six things a lender reads before it decides: affordability, trading time, the credit files, the purpose, security or the guarantee, and the conduct of the bank account.
- What is a valuation report?The surveyor’s written opinion of a property’s value prepared for the lender under the RICS Red Book: what it contains, the bases of value, and why the figure decides the loan.
- What is a bridging loan?Short-term borrowing secured on property, repaid in one sum from a defined exit: the four things that define it, what it is for, and what it is not.
- What is asset finance?Borrowing to acquire or release value from equipment, vehicles or machinery where the asset is the security: hire purchase, leases and refinance, and what defines each.
Funding the gap
The size of the gap, how long it stays open and what causes it are enough for us to check the case against lenders’ published criteria before anything is sent anywhere.
Sources
Checked 26 October 2026. The statutory interest rate is the one set by the Late Payment of Commercial Debts (Interest) Act 1998 as amended; this page explains the measure in general terms and is not accounting advice.
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. We do not provide financial advice.