Cookie Consent

By clicking “Accept”, you agree to the storing of cookies on your device to enhance site navigation, analyse site usage, and assist in our marketing efforts. View our Privacy Policy for more information.

Your working capital cycle explained in 4 simple steps

October 10, 2019
min read
Share this:

Get to grips with the working capital cycle formula and how to use it for your business, plus practical advice for improving your working capital cycle.

Understanding the working capital cycle formula and how to use it.

The world of business can be loud and busy. So busy in fact that it’s easy to get overwhelmed by the noise of it all. The one thing that you can be sure of hearing above all the noise is the word profit.

Chances are you started your business to fulfill a purpose, a vision, a dream. But to keep doing that, your business needs to make a profit. The good news is that you can work out how fast your business can turn a profit very easily by using the working capital cycle formula. Never heard of the working capital cycle formula? Well, stick around to find out why we think it’s worth a closer look.


The working capital cycle formula enables you to measure how fast your business can turn its current assets into money in the bank (your working capital cycle). It’s a magic trick that lets you to see into the future. A finance crystal ball, if you will.

When you know what your working capital cycle is, you can predict how long it will take for you to be paid in full, and how long you might be out of pocket. With this information, you can better manage your cash flow, inventory, and efficiency.

Let’s start by looking at the formula:

Working capital cycle = inventory days + receivable days – payable days

That seems pretty complicated, so let’s simplify…


Step 1: Inventory days

The first thing you need to do is get to know your inventory. Inventory is your stock, goods and other contents of your business. Your inventory days refer to the time it takes, on average, to sell your inventory.

Let’s pretend that you make metal straws (thank you for helping to save the environment by the way). We’ll call this business The Metal Straw Co. Now let’s pretend that it takes you about 80 days to sell a batch of stock. That means that you’re working with 80 inventory days.

Step 2: Receivable days

Now that you’ve produced and sold your stock, you need to be paid. Your clients, also referred to as your debtors, take 21 days to pay you for the order of straw that you’ve invoiced. In other words, you’re working with 21 receivable days.

Step 3: Payable days

Next, we need to look at your payment practices. How long does it take you to pay your suppliers (also referred to as your creditors) for the raw materials used to make the metal straws? In this example, we’ll say that it takes 90 days for you to pay your suppliers. So, you’re working with 90 payable days.

Step 4: Working capital cycle

Now that we have all the parts, we can work out your working capital cycle. Let’s put them into the formula:

80 inventory days + 21 receivable days – 90 payable days = a working capital cycle totalling 11 days

So what does this mean?

As we mentioned before, the working capital cycle formula tells you how many days it takes for your business to turn your working capital into cash. It gives you that crucial glimpse into the future. In this example, it takes a total of 11 days for The Metal Straw Co. to turn their current assets into money in the bank.

Now what? If you want to improve your working capital cycle, you already have all the information you need…


You can improve your working capital cycle by:

  1. Reducing your receivable days, i.e. getting your debtors to pay you faster.
  2. Stretching your payable days so you can have favourable payment terms.
  3. Managing your inventory days by avoiding stockpiling and getting your products to move faster.
  4. Making sure that your receivable days are not greater than your payable days. i.e. ensuring that you get paid by your debtors before you need to pay your suppliers.


It’s not always possible to negotiate shorter payment terms with your debtors – especially if you’re working with big blue chip companies. Your receivable days might be 30, 60 or even 90 days, which has a huge impact on your working capital cycle.

With invoice finance, a finance provider (like Kriya) will give you an advance against your outstanding invoices. This means that you can get up to 90% of that working capital upfront, without having to wait for your debtors to pay. You can advance against some, or all, of your invoices, depending on your needs.

Find out more about invoice finance from Kriya

B2B Payments to boost your growth

To learn more about our payments and digital trade credit solutions book a call with us today.
Email is invalid.
Please use your company email address.
Annual Revenue*
We’ll use this information to get in touch with you about our products and services in accordance with our Privacy Policy. You can unsubscribe at any point. By submitting, you acknowledge we reserve the right to work with businesses that have been trading for a minimum of 12 months and have submitted at least one set of financial accounts.
Thank you. A member of the team will be in touch.
Oops! Something went wrong while submitting the form.

Explore related posts

Barclays Business Health Pledge Masterclass: Working Capital Solutions

Our CEO and Co-Founder, Anil Stocker, shared his expertise on the topic of alternative financing with Chris Forrest, Head of SME UK, Barclays Business. Find out how invoice finance can help!

 min read
Read more
Kriya's risk approach

Kriya’s risk approach in uncertain times

Our Chief Risk Officer, Michael Hoare reflects on the current economic landscape from the Risk team perspective

 min read
Read more
Anil Stocker, Co-Founder and CEO at Kriya, on businesses in the UK in 2022 and 2023.

Reflections on 2022 and looking ahead to 2023

How companies can navigate their business finance in 2023 and take advantage of key trends such as embedded finance

 min read
Read more