Working Capital can simply be defined as the cash you have put to work in your business. What is the cash “working on”? Good question. Typically there are three areas:
- Granting your customers short-term loans (aka Accounts Receivable)
- Paying for all that stuff in your warehouse (Inventory)
- Short-term loans your vendors have given you (Accounts Payable)
Optimizing your working capital doesn’t have to be complicated. How well you have it optimized is always a function of how well you understand how cash moves through your business in the first place.