Working capital is the money a business keeps tied up in day-to-day operations — broadly current assets (stock, debtors, cash) minus current liabilities (creditors, short-term dues). It funds the gap between paying for materials and salaries today and collecting from customers weeks later. Managing that gap, not profit alone, decides whether a firm can pay its bills on time.
The useful measure is the working-capital cycle in days: inventory days plus debtor days minus creditor days. A trader who holds stock for 30 days and collects in 45 while paying suppliers in 30 is financing 45 days of business from somewhere — own funds, a cash-credit limit or an overdraft. Shortening the cycle through faster collections and leaner stock releases cash without borrowing a rupee.
Fund the gap deliberately: a bank cash-credit or overdraft limit sized through a CMA assessment, invoice discounting through TReDS for receivables from large buyers, and a cash buffer for GST, TDS and salary outflows that don't wait for collections. Review debtor ageing weekly, not at year-end — the compliance calendar is a working-capital document too, because tax outflows are the most inflexible creditors you have.
The common failure is being profitable and cash-dead: growth eats working capital, because every extra rupee of sales carries stock and debtors with it. And stretching small suppliers is no longer free financing — the section 43B(h) rule turns micro and small vendors unpaid past 45 days into a tax cost at year-end.
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Reviewed to the law in force in FY 2026-27. General information, not advice — confirm the position for your facts before acting.