The short answer
Working capital is the money tied up in running the business day to day — stock on the shelf and invoices not yet paid, less what you owe suppliers. How much you need depends on your operating cycle: how many days pass between paying for something and being paid for it.
The operating cycle
Operating cycle = receivable days + inventory days − payable days
If customers pay in 60 days, stock sits for 45 days and suppliers give you 30 days, your money is committed for 75 days. On ₹3 crore of annual turnover — about ₹82,000 a day — that is roughly ₹61.6 lakh tied up at any moment.
Lenders normally expect you to fund a margin yourself, commonly around 25%, and will consider a facility for the rest.
Why profitable businesses run out of cash
Growth consumes working capital. Double your sales and you double the stock you carry and the invoices you are waiting on — but the extra cash from those sales arrives two months later. A business can be more profitable than ever and unable to pay salaries in the same month. This is the single most common reason healthy small businesses get into trouble.
Three fixes that cost nothing
- Collect faster. Cutting receivable days from 60 to 45 on ₹3 crore of turnover releases about ₹12.3 lakh — more than most facilities people go looking for. Invoice on despatch, follow up on day 30, and make payment easy.
- Negotiate supplier terms. Every extra day of credit is a day you do not have to fund yourself.
- Turn stock faster. Slow-moving inventory is usually the most expensive money in a small business, and it rarely appears in anyone’s cost calculations.
How lenders size a facility
Commonly around 20% to 25% of projected annual turnover, adjusted for your actual cycle and the margin you contribute. A business with a genuinely long cycle can justify more, but it has to be evidenced with debtor ageing and stock statements rather than asserted.
Facilities are usually renewed annually with fresh financials. Diarise the renewal — a limit that lapses because paperwork was late is painful and entirely avoidable.
Free, and it does not ask for your phone number.
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