What is working capital?

How to calculate it

Working capital = current assets minus current liabilities. Current assets include cash in the bank, money owed to you by customers (debtors), and stock. Current liabilities include money you owe to suppliers (creditors), tax due, and any loan repayments falling due within 12 months.

Why it matters

A profitable business can still fail if it runs out of working capital. This happens more often than most owners realise. You invoice a client for £10,000. That shows as revenue and profit on your P&L. But if the client takes 60 days to pay and your suppliers want paying in 30, you have a working capital gap that needs bridging. The business looks healthy on paper but cannot pay its bills today.

Tracking working capital monthly tells you whether the gap is widening or narrowing. If it is widening, you need to act: chase debtors faster, negotiate longer terms with suppliers, or arrange a short-term facility to bridge the gap.

How CFO Pal helps

CFO Pal reports both halves of the squeeze from your own ledger: debtor days and creditor days each month, and what you are owed set against what you owe, so the gap is a figure you can watch rather than a feeling.

What it raises unprompted is the thing that usually causes the gap rather than the gap itself. A customer who has started paying slower, or stopped, is named with the change in days. An invoice that passes its due date is reported the following morning with the client and the amount. Both arrive without you asking, which is the difference between seeing a trend and finding out when a direct debit bounces.