Quick answer
Working capital finance pays for the money tied up between buying inputs and being paid by customers: stock, wages and debtors. Split the need into a permanent core and a seasonal swing. Fund the core with a term loan or secured facility, and the swing with a revolving line of credit, overdraft or invoice finance. Size it by multiplying your daily operating spend by the days in your cash cycle.
Key points
- Working capital is the cash locked inside your trading cycle: stock on the shelf plus invoices not yet paid, minus what you owe suppliers
- A growing business needs more of it, not less, because every extra sale ties up cash before it comes back
- Fund the permanent core with longer money and the up-and-down swing with a revolving facility
- Large businesses took an average of 64 days to pay 95% of their small business invoices in the first half of 2025
- Size the facility in days of spend, then test it against your worst month, not your average one
Ask ten owners what working capital is and most will say “the money to keep the doors open”. That’s close, but it hides the useful part. Working capital is a specific amount of cash that your business model locks up: the stock you’ve paid for but not sold, plus the invoices you’ve issued but not collected, less the bills you haven’t paid yet. Once you can put a number on it, choosing finance gets much easier.
Where your working capital actually goes
Picture one dollar travelling through a wholesale business. It leaves the bank to buy stock. The stock sits in the warehouse for 40 days, gets sold on 30-day terms, and the customer pays on day 75. The supplier gave you 30 days. So for 45 days, that dollar is out of your account doing nothing you can spend.
That 45 days is the working capital cycle, sometimes called the cash conversion cycle. Every business has one:
| Business type | Where cash gets stuck | Typical pressure point |
|---|---|---|
| Café or restaurant | Very little: customers pay at the till | Wages and rent ahead of a slow month |
| Wholesaler or distributor | Stock and 30 to 60-day debtors | Rapid growth or a big new customer |
| Trade contractor | Materials, labour and progress claims | Retentions and slow-paying builders |
| Manufacturer | Raw materials, work in progress and debtors | Long production runs before invoicing |
| Labour hire or recruitment | Weekly wages against monthly invoices | Taking on more placements |
A café may never need a working capital facility. A labour hire firm that pays staff weekly and bills clients monthly can need one from its first big contract.
Core and swing: the distinction that picks your facility
The most useful idea in working capital finance is separating two layers of the need.
Core working capital is the minimum that’s always tied up. Even in your quietest month there’s some stock on hand and some debtors outstanding. That layer doesn’t go away; it grows as the business grows.
Swing working capital is the extra that comes and goes: the stock build before Christmas, the gap when a big customer pays late, the month three jobs finish at once.
Treating the core as if it were temporary is where many businesses get stuck. They fund a permanent need with a short-term loan, repay it in six months from cash the business doesn’t really have spare, then borrow again. Repeated renewals cost more and look worse to the next lender.
| Layer | Better fit | Why |
|---|---|---|
| Core | Business term loan or a property-secured facility | Paid down steadily, matched to a lasting change in the business |
| Swing | Line of credit or business overdraft | Draw it when needed, clear it when cash returns, pay only on what’s used |
| Debtor-driven swing | Invoice finance | The limit grows automatically with your sales ledger |
Our comparison of a line of credit versus a term loan goes deeper on how each one behaves.
Slow payers are a working capital problem
If your customers are large companies, your cycle is partly set by them. The Payment Times Reporting Regulator’s February 2026 update found large businesses took an average of 64 days to pay 95% of their small business invoices in the January to June 2025 period, up from 58 days. For a supplier on nominal 30-day terms, that difference is a month of extra funding.
Two practical responses help. Factor realistic payment days, not your invoice terms, into any sizing. And if most of your working capital is sitting in invoices to creditworthy customers, invoice finance lets those debtors carry the facility rather than your house.
A specialist can model both layers for you. Start a working capital enquiry and you’ll hear back from a person, not an auto-responder.
Sizing the facility in days
A clean method that lenders recognise:
- Find your daily operating spend. Take annual costs of goods and operating expenses, excluding depreciation, and divide by 365.
- Measure your cycle. Stock days plus debtor days, minus creditor days. Use actual figures from your accounting software, not targets.
- Multiply. Daily spend times cycle days gives the cash tied up in normal trading.
- Find the peak. Repeat with your busiest month’s figures. The difference between normal and peak is your swing.
- Sense-check the ratio. Our working capital ratio calculator shows how current assets compare with current liabilities before and after the new facility.
If you’d rather start from a specific shortfall, the cash flow gap calculator works from the other direction.
Worked example: a growing food distributor
This is an illustration only. A food distributor turns over $3.6m a year and is about to add a supermarket group as a customer, which should lift sales by a third.
| Measure | Now | After the new customer |
|---|---|---|
| Daily operating spend | $9k | $12k |
| Stock days | 21 | 21 |
| Debtor days (actual) | 38 | 46 |
| Creditor days | 30 | 30 |
| Cycle | 29 days | 37 days |
| Cash tied up in trading | about $261k | about $444k |
The business currently funds its $261k from retained profit and a small overdraft. The new customer adds roughly $183k of permanent working capital, plus a seasonal swing of about $60k ahead of the December peak.
The owners take a three-year term loan of $180k for the core increase and a $75k revolving line for the swing. Their bank, which already holds the overdraft, offers the line. The term loan comes from a non-bank lender that is comfortable with the customer concentration the bank flagged. Combined, the monthly cost is something the new margin covers several times over.
Where banks fit
Banks are excellent working capital lenders when you have two or more years of financials, steady profit and security to offer. Their overdrafts and lines are often the lowest-cost money you’ll find, and a business that fits should take that offer seriously.
They’re less flexible with rapid growth, customer concentration, recent losses or a tax debt. That’s when non-bank cash flow lenders, invoice financiers and property-secured lenders become useful. If your bank has already said no, our guide on declined bank applications lays out the next steps without judgement.
Putting the right facility in place
Working capital problems rarely announce themselves. They show up as a supplier you pay a week late, a wage run that needs a transfer from your personal account, or an order you quietly turn down. Getting the structure right before that happens is far cheaper than fixing it afterwards.
Our enquiry takes about a minute. Asking us costs your credit score nothing, and nothing you send is broadcast across the lending market. A specialist reads the details and calls to talk through core and swing with you. The more accurate your turnover, debtor days and current facilities are on the form, the sooner a sensible structure takes shape.
Frequently asked questions
What is a working capital loan?
It's finance used to run the business day to day rather than to buy a long-life asset. It covers things like stock, wages, rent and supplier bills while you wait for customers to pay. It can be a term loan, a line of credit, an overdraft or a facility secured on your invoices.
Is a line of credit or a term loan better for working capital?
It depends on whether the need is permanent or temporary. A line of credit suits needs that rise and fall, because you only pay for what you draw. A term loan suits a lasting increase, such as the extra stock and debtors that come with a bigger business, because it's paid down on a fixed schedule.
How much working capital finance can I get?
Unsecured working capital lenders usually size the limit from your monthly turnover and bank statements, and amounts typically run from $5k to around $500k. Invoice finance is sized on your approved debtors. With property as security, larger limits are possible.
Why does my business need more working capital as it grows?
Each new sale usually means buying stock or paying staff before the customer pays you. If you're growing quickly, the cash going out to fund next month's sales runs ahead of the cash coming in from last month's. Profitable businesses can run short this way.
Can I get working capital finance with an ATO debt?
Often, yes, particularly from non-bank lenders, if the debt is on a payment plan you're keeping or the new facility will clear it. A lender will look at whether the business can carry the tax repayments and the new facility together.