Working capital.
aka net working capital, operating cash cushion, current assets minus current liabilities
The cash you need to keep the lights on while you wait to get paid.
What it actually means
Working capital is the money a business has available to run its daily operations. It is usually calculated as current assets (cash, money customers owe you, stock) minus current liabilities (bills and short-term debts due within about a year). Positive working capital means you can cover near-term obligations; negative means you may struggle to.
Think of it as the cushion between money coming in and money going out. Most businesses pay for things before their customers pay them. A furniture maker buys wood, pays staff, builds a table, ships it, then waits 30 or 60 days for the invoice to be paid. All that time, cash is tied up. Working capital is what funds that gap. The time it takes to turn spending back into cash is often called the cash conversion cycle, and shortening it frees up money without selling a single extra item.
The nuance people get wrong: more is not always better. A pile of unsold stock counts as a current asset, but it is not helping anyone. And some businesses run on negative working capital on purpose. A busy supermarket might take your cash today but pay its suppliers weeks later, so shoppers effectively fund the shelves. That works only while sales keep flowing. For many small companies, running short of working capital is one of the classic ways a profitable business still runs out of cash.
Where you'll hear it
Sales are up, but our customers are paying in 75 days and we pay suppliers in 30. That gap is eating our working capital.
Translation: the business is growing, but cash is stuck in unpaid invoices, so she wants faster collections or longer supplier terms.
Also in bank loan discussions, where lenders look at it to judge whether you can pay short-term debts, in acquisitions, where buyer and seller often agree a normal level of working capital to leave in the business, and in supplier negotiations about payment terms.
The pop-culture version
Picture a small band booking a ten-city tour. Before the first show, they pay for the van rental, fuel, hotel deposits and a box of merch. The ticket money from each venue might arrive days or weeks after they play. For a while, everything is going out and nothing is coming in.
The cash they need to survive that gap is their working capital. If they start with too little, they could be stranded halfway, not because nobody bought tickets, but because the money has not shown up yet. Shows can sell out and the band can still be broke on a Tuesday.
Smart tour managers fix this from both ends: they ask venues to pay faster, negotiate smaller deposits, and keep a cash buffer. Businesses do exactly the same with customers, suppliers and stock.
The practical rule: profit tells you whether the business makes money over time; working capital tells you whether it can pay this month's bills. Watch how long customers take to pay you and how long you take to pay others.
Say it like you mean it
“If we get customers paying in 30 days instead of 60, we free up a lot of working capital without borrowing.”
It links working capital to payment timing, which is the main lever most teams actually control.“We have strong working capital because we made a big profit this year.”
Profit and working capital are different things, and a profitable company can still be short of cash.You may hear net working capital, which usually means the same thing, or a working capital adjustment in deal talk. When someone says cash is trapped in working capital, they mean it is sitting in stock or unpaid invoices instead of the bank.
A practical walkthrough of working capital management and the cash conversion cycle, covering receivables, payables and inventory levers for steadier cash.
Decoded next
Decoded by the Kurums editorial team. Kurums Decoded translates the language of business for people who are new to it. Definitions are kept short on purpose; the serious version above goes deep. Nothing here is financial, legal or career advice.
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