Working capital is calculated as current assets minus current liabilities. Current assets are things the company expects to convert into cash within twelve months — stock, trade debtors, and cash itself. Current liabilities are obligations due within the same period — trade creditors, short-term loans, and accrued expenses. The resulting figure shows how much liquid resource is available to fund the business's day-to-day activity.
Positive versus negative working capital
A positive working capital balance means the company can cover its near-term obligations from its own short-term assets. A negative balance (where current liabilities exceed current assets) is not always a crisis — some large retailers and subscription businesses run permanently negative working capital by design, collecting cash before they pay suppliers. For most SMEs, however, a negative or deteriorating working capital position is a warning sign worth investigating.
The working capital cycle
Working capital is not static. It flows around a cycle: cash is used to buy stock or inputs, those inputs are worked up into a product or service and sold, and the resulting debtor invoice is eventually collected back into cash. The length of this cycle — how many days cash is tied up before it returns — determines how much working capital the business needs. A longer cycle requires more financing.
Finance options for working capital
When the working capital cycle creates a funding gap, external finance can bridge it. Credicorp Flex is a revolving credit facility designed precisely for this: draw when outgoings precede receipts, repay as cash arrives, and draw again as needed. For a one-off bill that is stretching liquidity, Credicorp Slice spreads the payment over three or four weekly instalments at a flat 6% fee.
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: What is liquidity and why does it matter for businesses?, What is overtrading and how can a business avoid it?.