Working capital is cash locked up in ongoing operations: stock, work in progress and unpaid invoices. Growth consumes cash. In fact, fast-growing companies frequently experience severe cash crunches while remaining fully profitable on paper.
- Flexible drawdown and repayment aligned with operational requirements
- Interest charged solely on the drawn balance
- Quickly deployable during seasonal spikes and major contract wins
Calculating the working capital cycle
The critical calculation is the cash conversion cycle: how many days does capital remain tied up between purchasing inputs and receiving customer payments? Days inventory outstanding plus days sales outstanding minus days payables outstanding. In the manufacturing sector around Eindhoven, this cycle often stretches to 90 days or more due to extensive lead times and material pre-financing.
Every single day trimmed from that cycle releases interest-free liquidity. Debt finance should be the final piece of the puzzle, not the starting point: first optimise credit control, supplier payment terms and stock holding levels.
Types of working capital finance
- Bank overdraft facility — classic flexible buffer held with a high-street bank
- Revolving credit facility — non-bank facility, fast to draw down
- Factoring — invoice advances against outstanding sales ledgers
- Inventory finance — credit secured against the value of stock
- Trade credit — extended payment terms negotiated across the supply chain
Frequently asked questions
Working capital facility or factoring?
Factoring provides working capital secured against your debtor book and expands automatically alongside turnover. An overdraft or revolving credit line operates under a fixed ceiling. For rapid turnover growth, factoring is often the better match; for seasonal or fluctuating revenue around a steady baseline, a credit line is preferable.
Does working capital finance count as debt on the balance sheet?
Yes, drawn credit facilities are recorded as current liabilities. With factoring, the balance sheet treatment depends on whether bad debt risk transfers to the factor (non-recourse) — which can enable off-balance-sheet treatment and improve gearing ratios.