What is working capital — and why does it matter?
Working capital is the lifeblood of any trading business. Simply put, it's the money available to fund your day-to-day operations — paying suppliers, covering wages, managing inventory and bridging the gap between when you spend and when you receive payment.
Most business owners understand the concept. Fewer understand the range of finance options available to fund it.
Option 1: Business overdraft
A business overdraft is a revolving credit facility attached to your business bank account. You draw on it when you need cash and repay it as funds come in. It's flexible and can be drawn and repaid repeatedly, making it well-suited to businesses with irregular cash flows. The downside is that overdraft limits are often relatively modest and the rate can be higher than other facilities.
Option 2: Invoice finance (debtor finance)
If your business issues invoices with 30-, 60- or 90-day payment terms, invoice finance lets you access a proportion of those outstanding invoices immediately — typically 70–85% — rather than waiting for your customers to pay. When your customer pays, the finance is repaid and you receive the balance (less the lender's fee).
This is particularly powerful for businesses with large debtors books and strong revenue but tight cash flow due to payment terms.
Option 3: Trade finance
Trade finance supports businesses that import goods — bridging the gap between paying a supplier and receiving payment from your customer. It can include import letters of credit, bill of lading finance and supplier payment facilities.
Option 4: Asset-based lending (ABL)
Asset-based lending uses the assets of your business as security — including debtors, inventory, plant and equipment. It's a flexible structure that can grow with your business and provide more funding than a traditional overdraft.
Choosing the right product
The right working capital product depends on your business model, the nature of your cash flow cycle, the quality of your debtors book, and your growth plans. This is an area where generic advice won't serve you well — the right structure for a manufacturing business is very different from the right structure for a professional services firm.
We've spent over two decades in this space. If you'd like to understand which working capital product might suit your business, the conversation is always free.