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Working Capital
Working Capital Limits Explained: A Practical Guide for MSMEs
Feb 3, 20268 min read
Working capital is the lifeline of any business. Delays in receivables, rising input costs and seasonal swings are all manageable, provided the limit is sized right.
Working capital limits are sized on the operating cycle (days of inventory plus days of receivables, minus days of payables) applied to projected turnover. Get this wrong and you either over-borrow and pay unnecessary interest, or under-borrow and stretch suppliers. We walk through a four-quarter cash flow before recommending a structure, because the same business looks different in October than it does in March.
