Working capital and operating capital are central to a functioning business, including how it moves money, handles risk, and whether it grows or stalls. But while these two forms of capital reflect different parts of a business's financial strategy, they are often misunderstood or conflated. Understanding how they work, how they differ, and when to focus on each is key. Below, you'll find a clear comparison of operating capital and working capital, and you'll learn how each one shapes the way businesses run, operate, and scale.

What's in this article?

• What is working capital?
  
• What is operating capital?
  
• What's the difference between operating capital and working capital?
  
• When should a business prioritise operating capital?
  
• When should a business prioritise working capital?
  
• How businesses can improve both working and operating capital
  

What is working capital?

Working capital is the money your business has on hand to keep operations running day to day. It covers the basics: paying employees and suppliers, restocking inventory, and managing any short-term surprises. Working capital informs whether you have enough liquid resources to meet your short-term obligations and take advantage of opportunities, or whether you're at risk of running into a cash crunch. If you have too much, you might be sitting on idle capital that could be reinvested elsewhere. If you have too little, you risk defaulting on your immediate commitments.

To calculate working capital, subtract your current liabilities from your current assets.

Current assets include:

• Cash and equivalents

• Accounts receivable (i.e. unpaid customer invoices)

• Inventory you expect to sell within the year

Current liabilities include:

• Accounts payable

• Short-term loans

• Accrued expenses (e.g. upcoming tax bills)

If your assets outweigh your liabilities, you have positive working capital, which usually signals stability. If the reverse is true, you have negative working capital, which can be a red flag.

It's also important to track changes in working capital over time. A shrinking amount of capital might mean:

• Customers are taking longer to pay

• You're carrying too much inventory

• Expenses are rising faster than sales

While none of those show up in the working capital formula directly, they all influence your total amount.

What is operating capital?

While working capital assesses liquidity and immediate cash flow, operating capital (short for operating working capital) is the capital involved in running your core operations.

Operating capital doesn't include:

• Cash and cash equivalents

• Short-term investments

• Short-term debt

You might have solid working capital (i.e. plenty of liquidity), but still be limited if you haven't invested enough in inventory or don't have enough sales coming in.

Conversely, you could be asset-rich but cash-poor, with all your money tied up in inventory and not enough liquidity to cover short-term needs. That imbalance can create friction or stall momentum.

Operating capital gives you a view into how well positioned your business is to keep functioning as it is right now. It's about having the right capital in the right places to support operations over time.

What's the difference between operating capital and working capital?

Working capital and operating capital are closely related, but they serve different functions and reflect different measures of your business's financial health.

• Working capital is about liquidity: Do you have enough cash (or cash equivalents) to meet your immediate obligations?

• Operating capital is about capacity: Do you have the resources in place to keep the business running and growing?

Here's a closer look at how these terms differ.

Scope

Working capital is a snapshot of short-term solvency. It includes cash, inventory, receivables, and upcoming bills.

Operating capital is a closer look at how your day-to-day operations are affecting liquidity. It's part of working capital, but working capital extends further to include cash and short-term investments.

Purpose

Working capital tells you whether your business can handle its short-term financial commitments, such as paying vendors, meeting payroll, or restocking inventory.

Operating capital reflects how well-capitalised your business is to operate day to day.

Business use

Finance teams closely monitor working capital to gauge cash flow levels and liquidity risks. It gets more attention during planning, investment, or expansion phases – when you're deciding what to build, buy, or upgrade to meet your goals.

Operating capital excludes financing decisions. It can move quickly based on customer payment timing, supplier terms, or inventory levels.

The goal is to balance both working capital and operating capital. If you have too little of either, you risk short-term disruptions.

When should a business prioritise operating capital?

Operating capital matters most when you're focussed on building or expanding your core business – the infrastructure, tools, and capabilities that power how you operate and grow. Here's when it makes sense to put operating capital front and centre.

You're scaling or expanding

Opening new locations, adding a product line, or entering a new market all require heavy investment. You'll likely need:

• Equipment

• Real estate build-outs

• Technology upgrades

• New logistics or fulfilment infrastructure

These are long-term bets on operational capacity, and they require a solid base of operating capital to ensure you can still meet your short-term obligations.

You're improving the business engine

Sometimes it's about improving rather than just growing. Upgrading an outdated manufacturing line or investing in automation might not change your footprint, but it can improve output, lower cost per unit, and free up staff for higher-value work.

These investments boost efficiency and competitiveness, but they put a strain on your operating capital.

Operating capital sets up the business to keep running on a day-to-day basis, even during high-growth phases.

When should a business prioritise working capital?

Working capital becomes top priority when staying flexible and solvent are your goals. If your business is tight on cash or navigating volatility, you'll want to monitor working capital most closely. Let's take a closer look at when it deserves your full attention.

Cash flow is getting tight

If covering payroll, rent, or supplier payments is starting to feel like a juggling act, you're likely facing a working capital shortfall. That doesn't always mean business is bad. It could mean:

• Customers are paying more slowly than usual

• Inventory is sitting longer than expected

• Expenses have crept up faster than revenue

In any of these cases, you need to shore up your liquidity – fast.

You're entering a slow season or downturn

During recessions or seasonal lulls, revenue might dip. When that happens, the smartest move is to stretch the cash you have. That might mean:

• Cutting back on inventory orders

• Postponing unnecessary spending

• Holding a larger cash buffer

The goal is to keep operations stable without relying on external financing.

Sales are growing fast, but cash isn't

Ironically, growth can strain working capital. If sales spike, you might need to:

• Buy more inventory

• Hire more staff

• Cover delayed payments from new customers

Each of these situations eats up cash before revenue actually lands. Unless you manage working capital carefully, growth can hurt liquidity.

Financing is expensive or hard to get

When interest rates are high or lenders pull back, outside capital becomes more costly or simply less available, so your internal cash flow needs to carry more weight. Efficient working capital management helps you:

• Avoid high-interest loans

• Rely less on credit lines

• Keep more control over timing and risk

A strategic opportunity arises

Sometimes, timing drives the decision. Depending on the situation, having the flexibility and capital to act in the moment can give you a meaningful edge. For example, when:

• Equipment is available at a discount

• A competitor is offloading assets

• Interest rates are favourable for a major purchase

Working capital should always be on your radar, but it becomes extremely important when liquidity risk increases. If your ability to pay bills, restock, or operate without interruption is at risk, then you need to prioritise it.

How businesses can improve both working and operating capital

Working capital and operating capital might serve different purposes, but improving them often starts with the same principle: getting more out of the resources you already have and deploying new capital with intentionality. Here's how to strengthen both without overcorrecting:

• Accelerate receivables: Make it easier and faster for customers to pay you. That could mean tighter payment terms, incentives for early payment, or implementing better systems. Stripe Invoicing makes it easy to get paid – often in less than 24 hours.

• Manage payables with intent: Take full advantage of agreed-upon payment terms, and negotiate longer ones where you can. When used strategically, accounts payable can be a short-term buffer without hurting vendor relationships.

• Reduce excess inventory: Inventory eats up cash as it sits. Track turnover rates, trim slow-moving stock, and avoid over-ordering. Leaner inventory management frees up cash and tightens your working capital cycle.

• Control operating expenses: Run a spend analysis to see where money is being lost, such as unused subscriptions, overpriced vendors, or bloated processes. Every penny you save without compromising performance strengthens your working capital.

• Automate where possible: Tools that automate accounts receivable, payable, and expense tracking can help funds flow and eliminate manual bottlenecks. The more precisely you manage cash cycles, the stronger your working capital position becomes.

• Phase spending strategically: Not everything needs to be purchased outright. Leasing equipment or spreading payments across a product's useful life can preserve capital while still giving you access to the resources you need.

• Promote efficiency: Streamlined workflows, smarter procurement, or automation can reduce how much capital you need to run at full capacity. Lowering your capital-to-output ratio makes every penny stretch further.

• Plan ahead for capital needs: Map out 12–36 months of anticipated investments (e.g. equipment, software, hiring, space) for capital planning. Being proactive reduces the chance of scrambling or overextending during growth phases.

• Use short-term financing where it makes sense: If there's a temporary cash crunch or a need to invest ahead of incoming revenue, Stripe Capital offers fast, flexible access to funds.

Improving working capital and operating capital gives you breathing room. The strongest businesses manage cash tightly enough to stay agile while investing wisely enough to keep building.