Working capital is the difference between a business’s current assets and current liabilities. Assets include cash, receivables, and inventory, while liabilities include accounts payable, short-term debt payments, and accrued wages. The gap between them indicates whether a business can cover its expenses over the next year. For example, if it can make payroll next month, restock inventory before the current batch is sold, or cover a supplier invoice without scrambling for outside cash.

In 2025, 56% of small US businesses that applied for financing said they needed it to cover operating expenses. Working capital is meant to close that kind of short-term gap.

Below, we’ll explain how net working capital and working capital differ, how to calculate both, and how to finance a working capital gap.

Key takeaways

• Net working capital and working capital use overlapping formulas but often serve different purposes, depending on who’s asking.

• Calculating working capital with real numbers shows how much of a business’s cushion depends on cash and financing vs. core operations.

• Financing tied to daily sales adjusts with a business’s actual revenue instead of adding a fixed payment on top of existing obligations.

What are net working capital and working capital?

Working capital measures the cushion available to cover expenses that are due soon. “Net working capital” and “working capital” usually refer to the same calculation: current assets minus current liabilities. Current assets are what a business expects to turn into cash within a year, such as cash itself, accounts receivable, inventory, and short-term investments. Current liabilities are what’s due in the same time frame, including accounts payable, short-term debt payments, accrued wages, and taxes owed.

The difference between working capital and net working capital can come down to what’s included in the equation. When calculating net working capital, cash, short-term investments, and interest-bearing debt such as loans are often excluded, since those balances can shift based on financing decisions rather than day-to-day operations.

How do you calculate working capital?

Here’s the standard formula for working capital:

Working Capital = Current Assets - Current Liabilities

For example, imagine a landscaping business has $85,000 in current assets (e.g., cash, receivables from recent jobs, equipment parts inventory) and $52,000 in current liabilities (e.g., supplier invoices, short-term loan payment, payroll due at month-end).

Working Capital = $85,000 - $52,000 = $33,000

That’s the business’s cushion available to cover unexpected costs, take on a new job before getting paid for the last one, or handle a slow month without missing payroll.

For net working capital, the calculation excludes cash and loan balances to show what the operating side of the business generates on its own. Assets consist only of accounts receivable plus inventory, while liabilities consist only of accounts payable.

What’s the difference between net working capital and working capital?

Net working capital and working capital serve different purposes. The standard formula shows whether current assets exceed current liabilities, including cash and financing. This is often the figure a lender or outside party wants to see. The narrower calculation for net working capital removes financing decisions (e.g., how much cash a business is holding and short-term debt it’s carrying) and only looks at how well the core operation converts sales into cash.

The gap between working capital and net working capital can tell you how much of the business’s cash cushion depends on cash reserves and financing rather than on receivables and inventory turnover. A business that relies on the standard number alone might seem like it has a stronger buffer than it actually does throughout its operating cycle.

Here’s how working capital and net working capital differ:

Why does working capital matter for your business?

Working capital is the clearest signal of whether a business can operate without financial stress on any given week. Businesses need solid working capital to:

• Restock inventory: A retailer that buys stock in bulk ahead of a big season ties up cash in inventory long before any of it sells. Working capital determines whether that business can restock again before the first batch is even sold.

• Cover short-term obligations: A business with healthy working capital can cover payroll, rent, and supplier payments while receivables sit unpaid. A business without it often misses or delays vendor payments, which can strain supplier relationships.

• Plan for growth: Taking on a bigger client, opening a second location, and hiring ahead of demand all require cash before there’s any payoff. Working capital funds that gap without forcing a business to turn down the opportunity.

Working capital also provides more financial flexibility overall. A business with sufficient working capital can negotiate better terms with suppliers, take early payment discounts, or survive a slow month without issue.

Companies that manage working capital well monitor it on a rolling basis rather than once a quarter. A seasonal peak in receivables, a supplier who shortens payment terms, or a big new order that requires up-front inventory can shift the number within weeks. Tracking working capital regularly helps catch cash squeezes early, giving a business time to adjust payment terms with a supplier, tighten collections, or find financing before the gap leads to missed payroll.

What are working capital loans and financing options?

When a business needs to cover a working capital gap, instead of waiting for receivables to clear, there are a few financing options available:

• Short-term loans: A lump sum repaid over a period ranging from a few months to a year. It’s generally used to cover a specific, known gap, such as a seasonal inventory purchase.

• Lines of credit: A revolving credit limit a business draws from as needed and repays, then draws from again. This suits businesses with unpredictable timing gaps rather than one large, known expense.

• Revenue-based financing: Funding repaid as a percentage of daily or weekly sales rather than a fixed installment. Repayment scales with a business’s actual revenue so a slower week means a smaller payment.

Stripe Capital offers financing to businesses that already process payments with Stripe. It uses their payment histories to determine offer terms instead of requiring a lengthy application process. Because Stripe already has visibility into a company’s transaction volume, repayment can be structured as a percentage of daily sales so the pace tracks with weekly business performance.

That structure matters for the exact timing gap working capital is meant to cover. A business that took out a fixed-installment loan to get through a slow season still owes the same payment, even if the season turns out slower than expected. A repayment tied to daily sales adjusts on its own, which means the financing itself doesn’t become another fixed obligation that competes with payroll and supplier invoices for the same tight reserves.

How Stripe Capital can help

Stripe Capital offers financing solutions to help your business access the funds it needs to grow.

Capital can help you:

• Access growth capital faster: Get approved for financing in minutes—without the lengthy application process of traditional bank loans.

• Align financing with your revenue: Capital’s flexible structure means you pay a fixed percentage of your daily sales, so payments scale with your business performance. If the amount that you pay through sales doesn’t meet the minimum due each payment period, Capital will automatically debit the remaining amount from your bank account at the end of the period.

• Expand with confidence: Fund growth initiatives such as marketing campaigns, new hires, inventory expansion, and more—without diluting your equity or personal assets.

• Use Stripe’s expertise: Capital provides custom financing solutions informed by Stripe’s deep expertise and payment data.

Learn more about how Stripe Capital can fuel your business growth, or get started today.