Calculate your net working capital, cash conversion cycle, and total working capital funding requirement. Essential for MSMEs planning inventory, managing debtors, and applying for working capital loans.
Understanding Working Capital
Working capital is the money needed to run day-to-day operations — to buy inventory before you sell it, and to bridge the gap between when you pay suppliers and when customers pay you.
Net Working Capital = Current Assets − Current Liabilities
Working Capital Cycle (days) = Inventory Days + Debtor Days − Creditor Days
WC Funding Required = (Monthly Sales / 30) × WC Cycle
Current Ratio = Current Assets / Current Liabilities
A WC cycle of 60 days on ₹10L/month sales means you need ₹20L tied up in working capital at all times. Reducing debtor days or extending creditor days directly reduces this funding gap.
Working Capital FAQs
Banks and lenders look for a current ratio of at least 1.33 for working capital loan eligibility (RBI guidelines for MSME lending). A ratio of 1.5–2.0 is considered healthy. Above 3.0 may indicate idle cash that could be deployed better. Below 1.0 means current liabilities exceed current assets — a liquidity risk.
Four levers: (1) Reduce inventory days — better demand forecasting, faster stock turnover, JIT ordering. (2) Reduce debtor days — stricter credit terms, advance payment incentives, faster invoicing. (3) Increase creditor days — negotiate longer payment terms with suppliers (aim for 30–45 days). (4) Increase order frequency — smaller, more frequent orders reduce peak inventory holding.
Options for Indian MSMEs: (1) CC (Cash Credit) limit from banks — revolving facility against stock and debtors. (2) Mudra Loans (up to ₹10L) for micro businesses. (3) CGTMSE-backed loans — collateral-free up to ₹5Cr. (4) Invoice discounting / factoring — get 80–90% of invoice value upfront. (5) NBFC working capital loans — faster but higher interest rates (14–24% p.a.). Use our Business Loan Eligibility Calculator to check how much you qualify for.
