The Procurement Glossary » Working Capital

Working Capital

Finance & Payments

Definition

The money tied up in day-to-day operations — broadly current assets (inventory, receivables) minus current liabilities (payables).

Explanation

Procurement strongly influences working capital through inventory levels and payment terms. Holding less stock and paying suppliers later frees cash, but must be balanced against availability and supplier health.

Example

Extending payment terms and cutting inventory releases RM3m of working capital.

Related terms

• Cash Flow — The movement of money into and out of a business over time.
• Days Payable Outstanding (DPO) — The average number of days a company takes to pay its suppliers.
• Days Inventory Outstanding (DIO) — The average number of days inventory is held before it is used or sold.
• Inventory Carrying Cost — The total cost of holding inventory — capital tied up, storage, insurance, obsolescence and shrinkage.

Frequently Asked Questions

What is Working Capital?

The money tied up in day-to-day operations — broadly current assets (inventory, receivables) minus current liabilities (payables). Procurement strongly influences working capital through inventory levels and payment terms. Holding less stock and paying suppliers later frees cash, but must be balanced against availability and supplier health.

Can you give an example of Working Capital?

Extending payment terms and cutting inventory releases RM3m of working capital.

Back to the procurement glossary | Procurement concepts | Contact us