Definition
Current assets minus current liabilities — the cash available to run daily operations.
Why it matters
Receivables and PO financing are working-capital tools.
Where it shows up in a deal
Working capital is calculated from your balance sheet during diligence and is the number a funder uses to judge whether the facility will relieve pressure or merely refinance it. It also appears in bank covenants, where a minimum working capital or current ratio test can restrict what other financing you are allowed to take on.
What it affects
- Receivables are usually the largest component, which is why accelerating them changes the picture fastest.
- A true sale of invoices swaps one current asset for another and leaves the total broadly unchanged.
- An asset-based draw adds cash and a current liability at the same time, so the ratio can tighten.
- Covenant tests elsewhere can be tripped by the structure you choose, not by the amount you borrow.
A worked example
Current assets of $1,400,000 - including $820,000 of receivables - against current liabilities of $900,000 gives working capital of $500,000 and a current ratio of about 1.56. Advancing 85% against $700,000 of eligible receivables converts $595,000 of AR into cash; under a true sale the total barely moves, while a secured draw raises both sides of the balance sheet.
The common mistake
Related terms
- Cash FlowThe net movement of cash into and out of a business over a period.
- Cash Conversion CycleThe number of days between paying for inventory and collecting cash from customers.
- Accounts ReceivableMoney owed to a business by customers for goods or services delivered on credit.
- Borrowing BaseThe maximum amount available under an asset-based line, calculated from eligible collateral.
Questions about how working capital affects your facility?
Call (929) 658-8087 or request a written quote — no obligation, no credit impact.
