Nearly every small business relies on short-term assets and liabilities to operate daily — from buying inventory to paying staff. Managing this balance effectively is called working capital management, and it’s a key part of financial health and long-term growth.
At its core, working capital = current assets – current liabilities. It reflects the resources a business has on hand to fund day-to-day operations.
What Are the Types of Working Capital?
Working capital isn’t static — it constantly shifts forms, from cash to receivables to inventory and back again. Understanding its types helps business owners manage and optimize their finances.
- 1. Gross Working Capital
This refers to the total value of current assets, including:
- Cash
- Accounts receivable
- Inventory
- Short-term investments
- 2. Net Working Capital
This is the difference between current assets and current liabilities. Positive net working capital means your business can pay its short-term obligations — and still operate smoothly.
What’s the Difference Between Permanent and Variable Working Capital?
🔒 Permanent Working Capital
This is the minimum amount of capital your business always needs to stay operational. It’s typically funded through long-term sources and includes:
- – Cash reserves
- – Core inventory
- – Accounts receivable base
🔄 Variable Working Capital
These are the funds that fluctuate based on business cycles and seasonality. It’s often financed through short-term funding options, such as:
- – Merchant cash advances
- – Revenue-based financing
- – Business credit lines
What Are the Main Objectives of Working Capital Management?
Effective working capital management helps your business:
- Maintain Smooth Operations
Keeping the working capital operating cycle healthy ensures that your business can acquire materials, produce goods, and deliver products without disruption.
- Minimize the Cost of Capital
It’s essential to control what it costs to maintain working capital. This includes managing interest rates, supplier terms, and short-term financing expenses.
- Maximize ROI on Current Assets
The return on assets like inventory and receivables should exceed the weighted average cost of capital (WACC) — ensuring you’re not losing money by holding them.
🎯 Goal: Efficient working capital management = improved profitability and business sustainability.
What Are the Common Working Capital Strategies?
Businesses typically use one of three working capital financing strategies based on their risk tolerance and cash flow predictability:
🛡️ 1. Conservative Strategy
- Low risk, low return
- Funds both permanent and variable working capital from long-term sources
- Minimizes risk from interest rate fluctuations, but increases capital cost
⚡ 2. Aggressive Strategy
- High risk, high return
- Finances most or all working capital — and sometimes fixed assets — from short-term sources
- Reduces capital cost but increases exposure to cash flow issues
⚖️ 3. Moderate (Hedging) Strategy
- Balanced approach
- Long-term sources fund fixed assets + permanent working capital
- Short-term sources fund variable working capital
What If You Experience a Working Capital Shortfall?
No matter how well you plan, unexpected expenses can cause cash shortfalls. Examples include:
- – Sudden equipment failure
- – Unplanned inventory needs for a large order
- – Slow customer payments creating a gap between invoicing and collections
When that happens, having access to fast, flexible working capital is essential to avoid disruption.
How CFG Merchant Solutions Helps Solve Working Capital Gaps
At CFG Merchant Solutions, we specialize in helping small and mid-sized businesses manage working capital shortfalls and fund growth with:
- ✅ Revenue-based financing
- ✅ Merchant cash advances
- ✅ Short-term working capital solutions
- ✅ Customized programs designed for your business model
Why Choose CFGMS?
- 🧠 Over 10 years of combined investment banking and commercial finance expertise
- ⏱️ Rapid decision-making and funding
- 💼 Direct access to capital without brokers
- 🤝 Human underwriting + proprietary technology
We understand the urgency of cash flow needs and move quickly — from application to funding — to help your business keep running smoothly.
Ready to Boost Your Working Capital?
Whether you’re planning for growth or dealing with an unexpected shortfall, CFG Merchant Solutions can help.
👉 Apply now for fast, flexible funding
📞 Contact us to speak with a working capital expert
FAQs: Working Capital and Financing Solutions
Q: How is working capital different from cash flow?
A: Working capital refers to your available short-term assets. Cash flow tracks the actual movement of cash in and out of your business.
Q: What causes a working capital shortfall?
A: Common causes include slow customer payments, inventory overspending, or sudden unexpected costs.
Q: How quickly can CFGMS provide working capital funding?
A: Many businesses are funded within 24–48 hours of approval.
Q: Is this a loan?
A: No. We offer revenue-based financing.