Working capital is the cash a business needs to keep trading. The common measure is current assets minus current liabilities. In everyday terms, for a trading or manufacturing firm:
Working capital ≈ stock + receivables − payables
The working capital cycle
The cycle counts the days between paying for materials and collecting from customers:
| Step | Days |
|---|---|
| Raw material and finished stock held | 45 |
| Customers take to pay | 60 |
| Less: suppliers allow | −30 |
| Cycle | 75 days |
A Morbi tile plant with that cycle and ₹50 lakh of monthly sales needs roughly two and a half months of sales, about ₹1.25 crore, funded by its own money or a bank limit.
Where it gets stuck
- Customers stretching from 60 to 90 days, common in slow seasons.
- Stock built ahead of a season that sells less than planned.
- Suppliers asking for advance when input prices rise.
What helps
Shorter collection, stock that moves, and suppliers paid on the agreed day. Banks set cash credit limits against stock and receivables, so clean, current figures for both make the conversation with the bank easier.