Working capital cycle

Definition

The working capital cycle traces how cash moves through day-to-day trading: you spend cash on stock, sell it to customers who become debtors, and collect the cash when they pay — while trade credit from suppliers funds part of that gap. The cycle is the time and money tied up completing one full loop.

How it relates to the cash conversion cycle

The two are closely linked. The cash conversion cycle (CCC) puts a number of days on the loop: stock days plus debtor days minus creditor days. The working capital cycle is the wider concept the CCC measures — the operational journey, where the CCC is the metric. A shorter cycle means cash returns sooner and less is locked up funding the gap.

Why it matters for finance

Every day cash sits as unsold stock or an unpaid invoice is a day it cannot pay wages or suppliers. Tightening the cycle — clearing stock faster, collecting sooner via reducing debtor days, paying suppliers later through negotiating terms — releases cash without borrowing a penny. Where the loop is unavoidably long, a working capital facility bridges it, and the working capital calculator sizes the gap.