What is Working Capital?

Working capital is the difference between a company’s current assets (cash, accounts receivable, inventory) and current liabilities (accounts payable, short-term debt). It represents the liquid funds available to finance daily operations, including purchasing inventory, paying suppliers, covering payroll, and funding marketing. For e-commerce businesses, inventory is typically the largest component of working capital, making inventory management decisions directly impact financial health.

Why It Matters

Working capital is the lifeblood of e-commerce operations. You need cash to buy inventory before you can sell it, and the time lag between paying suppliers and collecting customer payments creates a working capital cycle. If too much capital is locked up in slow-moving inventory, you may lack the cash to restock fast-selling items, fund marketing, or invest in growth—even if your business is profitable on paper.

How It Works

• The Cash Conversion Cycle: Working capital efficiency is measured by how quickly you convert inventory investment back into cash. The cycle: Cash → Purchase inventory → Store inventory → Sell inventory → Collect payment → Cash. Shorter cycles mean less capital tied up.
• Inventory Impact: Every dollar in inventory is a dollar not available for other uses. Excess inventory inflates current assets but reduces usable cash. Lean inventory improves cash position but risks stockouts.
• Supplier Terms: Negotiating longer payment terms with suppliers (net-60 instead of net-30) improves working capital by delaying cash outflows while inventory generates revenue.
• Receivables: Faster payment collection (shorter receivable cycles) improves working capital. Most B2C e-commerce collects payment at purchase, which is a working capital advantage over B2B.

How Nventory Helps

Nventory helps optimize working capital by providing visibility into inventory investment across all locations and channels, identifying slow-moving stock that is tying up capital unnecessarily, and optimizing reorder quantities to minimize inventory investment while maintaining service levels. The system helps you turn your largest asset—inventory—into cash as efficiently as possible.