Working capital

Working capital refers to the funds a business needs to cover its day-to-day operating cycle — paying suppliers, salaries, and overhead while waiting for customers to pay. Technically it is current assets minus current liabilities, but in a startup financing context the term almost always refers to the credit facility that plugs that gap.

Working-capital mismatches are one of the most common reasons operationally profitable startups run into distress. A B2B SaaS company might invoice enterprise clients with 60-day payment terms while salaries fall due monthly. A quick-commerce startup must pay suppliers on delivery but collects from end-users immediately — the reverse problem at scale. The cash-conversion cycle (CCC) — how long cash is tied up in the operating cycle — determines how much working-capital financing a business needs.

In India, working-capital products include cash-credit (CC) accounts and overdraft (OD) facilities from banks, short-term loans from NBFCs, invoice discounting platforms, and supply-chain financing programmes. The CC/OD model lets a business draw and repay flexibly within a sanctioned limit, paying interest only on the outstanding balance — making it cheaper than a term loan for lumpy cash needs.

For founders, the key discipline is not treating working-capital lines as permanent capital. Persistent reliance on the limit to cover fixed costs is a red flag signalling that the business model itself is undercapitalised, not just cyclically short of cash. Lenders monitor this and may restrict or withdraw facilities if the account shows signs of structural rather than seasonal dependency.