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Working capital: how much your business needs and how to fund it

Calculate your working capital need from collection, inventory and payment terms, see whether your cash covers it and compare the cost of each way to fill the gap.

Educational simulation. Not investment advice. Results are estimates based on the data you enter and do not replace advice from a qualified professional.

Reviewed on Oct 31, 2026

Example values: a retailer with $200,000 of monthly sales.

Sales

Average term of credit sales (cards, invoices on net terms).

Purchases and inventory
Cash
Cost of the alternatives

Enter the effective monthly rates of each line, including fees. Annual rates are compounded from the monthly rate.

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—Working capital need
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Where the working capital need comes from

Money tied up in receivables, inventory and minimum cash, minus what suppliers finance, compared with the own funds available.

Tap the chart to see the values.

What it costs to cover the shortfall

Annual cost of each way to fund the gap between the working capital need and the funds available, with the effective monthly cost.

Tap the chart to see the values.

As sales grow

The working capital need grows with sales. Projection for the next 12 months against the funds available.

Tap the chart to see the values.

Terms that free up cash

Working capital need for other collection and payment terms. Your situation is in the center.

fits the funds availablefunds short
Working capital calculation

Next step

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The summary lists your inputs, results, formulas, assumptions and sources. The full report also includes the charts and interpretations, in color. In the print dialog, choose Save as PDF.

Method, assumptions and sources

Formulas

Working capital need = receivables + inventory + minimum cash − payables
Receivables = sales × % on credit × days to collect ÷ 30; inventory = cost of sales × days inventory ÷ 30; payables = purchases × days to pay ÷ 30; cash = expenses × days ÷ 30
Cash conversion cycle = days inventory + days to collect × % on credit − days to pay
Effective monthly cost: loan and credit line at the rate entered; factoring = rate ÷ (1 − rate × days ÷ 30); supplier terms and discounts = cost ÷ cash freed

Assumptions and limits

  • Average-days method, with purchases equal to cost of goods sold. Sales taxes, seasonality and collateral required by banks are not considered.
  • Rates are entered by the user; no transaction taxes are added.
  • Official terms and the all-in cost are those stated by the lender in the contract, and approval depends on its credit review.

Official sources and references

  • Brealey, Myers & Allen. Principles of Corporate Finance (working capital management). McGraw-Hill.
  • U.S. Small Business Administration, loans for small businesses.

Frequently asked questions

What is working capital?

The money a business needs to operate between paying suppliers and collecting from customers, funding inventory and credit sales.

How is the cash conversion cycle calculated?

Days inventory + days to collect − days to pay. It is the number of days the business funds with its own or borrowed money.

How do I read the default example?

The retailer ties up $232,500: $210,000 in receivables, $110,000 in inventory and $22,500 of minimum cash, minus $110,000 financed by suppliers. With $100,000 of own funds, $132,500 is missing; the cash conversion cycle is 32 days.

What is the cheapest way to fund working capital?

Usually longer supplier terms and faster collection. Among financial options, compare the effective cost; overdrafts and revolving credit lines tend to be the most expensive.

Where do I get the average days?

Days to collect from your sales and card processor reports; days inventory from average inventory divided by daily cost of sales; days to pay from supplier invoices. An accountant can calculate all three from the balance sheet.

Why does growth create a cash problem?

Because receivables and inventory grow with sales before the extra cash comes in. The projection shows when own funds stop being enough.

When should I talk to a bank or adviser?

When the shortfall is recurring or grows faster than sales. Before signing for credit, compare the all-in effective rate with the alternatives in the table.

Related calculators

See all in Cash, terms & credit ›

How to calculate your working capital need

Working capital is the money a business needs to keep running between paying suppliers and getting paid by customers. It funds inventory and credit sales. When it falls short, even a profitable business struggles to pay its bills.

The cash conversion cycle

Cycle = days inventory + days to collect − days to pay

It is the number of days the business has to fund with its own or borrowed money. The longer the cycle, the more working capital it needs.

Working capital need

Need = receivables + inventory + minimum cash − payables to suppliers, each estimated as daily value × days. A rough shortcut is the daily cost of sales times the cycle.

ItemValue
Cost of sales per day$4,000
Cash conversion cycle50 days
Approximate need$200,000

How to fund it

The cheapest sources are usually operational: longer supplier terms, faster collection, less inventory. Among financial options, compare the effective monthly cost: owners’ money (its opportunity cost), a working capital loan, factoring or receivables financing, and, usually the most expensive, overdrafts and revolving lines of credit.

Growth needs cash

Working capital grows in step with sales. Plan the funding before growth starts, so the business does not run out of cash right when it sells the most.