01 What working capital is
Every business has a loop: you pay for raw material, turn it into goods, sell the goods, and finally collect the money. The money that is stuck in this loop at any time is your working capital need.
Machines and buildings are long-term money. Working capital is short-term money that keeps coming back and going out again.
02 Count your cycle in days
Cash cycle (days) = days raw material is held + days to make and hold finished goods + days customers take to pay − days your suppliers give you to pay.
Multiply the cycle by your average daily spending on material, wages and running costs. That is roughly how much working capital you need.
Example (hypothetical numbers, not data): raw material is held 30 days, making and storing goods takes 15 days, customers pay in 45 days, and suppliers give you 30 days. Cycle = 30 + 15 + 45 − 30 = 60 days. If you spend about ₹3,00,000 a month (about ₹10,000 a day), you need about 60 × ₹10,000 = ₹6,00,000 of working capital. If you get customers to pay in 30 days instead of 45, the cycle drops to 45 days and the need falls to ₹4,50,000, freeing ₹1,50,000.
03 Ways to shorten the cycle
Each day you cut from the cycle releases cash without any loan.
- Ask for part payment in advance on large orders.
- Send invoices the same day you deliver, and follow up on the due date.
- Buy raw material in smaller, more frequent lots if prices allow.
- Agree longer credit with suppliers in return for steady orders.
- If you are a registered micro or small enterprise, the MSMED Act, 2006 says buyers must pay within the agreed period, and that period cannot be more than 45 days. You can file a delayed-payment complaint on the MSME Samadhaan portal.
- Large buyers can be asked to pay through TReDS, where a bank pays your invoice early.
04 Bank working-capital loans
Banks give working capital as a cash credit or overdraft limit: you draw what you need and pay interest only on what you use. The bank usually asks you to fund part of the need yourself; this is called your margin.
Ask for a limit based on your real cycle, not a guess. A limit that is too small leaves you short every month; one that is too large costs you fees and makes repayment harder to judge.